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Builder Confidence Falls For 11th Straight Month

David Krechevsky
Nov 16, 2022
NAHB/Wells Fargo HMI November 2022
NAHB/Wells Fargo Housing Market Index has fallen every month in 2022.
National Association of Home Builders

Use of incentives increases as builders try to lure buyers.

  • The NAHB/Wells Fargo Housing Market Index has fallen in every month so far in 2022.
  • After rising to 84 in December 2021, the index has now fallen to 33.
  • The number of builders offering incentives — including paying points, rate buydowns, and price cuts — rose in November.

Interest rates and the cost of building materials are still high, affordability and buyer traffic continue to decline. So it’s no surprise that builder confidence continues to fall.

The National Association of Home Builders on Wednesday said its NAHB/Wells Fargo Housing Market Index, which tracks builder confidence in the market for newly built single-family homes, fell for the 11th straight month in November. 

The index fell five points to 33, back to levels seen at the onset of the COVID-19 pandemic in the spring of 2020. The index ended last year on a strong note, rising to 84 in December. It has fallen in every month since then.

All three HMI components declined in November. Current sales conditions fell six points to 39; sales expectations in the next six months dropped four points to 31; and traffic of prospective buyers fell five points to 20. Any number below 50 indicates that more builders view conditions as poor rather than good.

“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” said NAHB Chairman Jerry Konter, a home builder and developer in Savannah, Ga. “With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production.”

The slumping buyer traffic has prompted builders to offer more incentives. According to the survey, 59% of builders reported using incentives, with a big increase in usage from September to November. 

Of the builders using incentives in November: 

  • 25% said they are paying points for buyers, up from 13% in September. 
  • 27% said they offered mortgage rate buydowns, up from 19% a month earlier.
  • 37% cut prices in November, up from 26% in September, with an average price of reduction of 6%. This was still far below the 10%-12% price cuts seen during the Great Recession in 2008.

“Even as home prices moderate, building costs, labor, and materials — particularly for concrete — have yet to follow,” said NAHB Chief Economist Robert Dietz. “To ease the worsening housing affordability crisis, policymakers must seek solutions that create more affordable and attainable housing.”

With inflation showing signs of moderating, he added, “this includes a reduction in the pace of the Federal Reserve’s rate hikes and reducing regulatory costs associated with land development and home construction.”

Annual inflation was 7.7% in October, down from 8.2% a month earlier, prompting some economists to say inflation may have peaked.

Derived from a monthly survey that NAHB has conducted for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” 

Scores for each component are then used to calculate a seasonally adjusted index.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 41, the Midwest dropped two points to 38, the South fell seven points to 42, and the West posted a five-point decline to 29.

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