Despite low existing inventory figures and favorable demographics, builder confidence in single-family homes droops again for the fourth straight month. Increased construction costs and higher interest rates contribute to their concerns.
According to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes moved two points lower to 79 in March from a downwardly revised reading in February. This is the fourth straight month that builder sentiment has declined and the first time that the HMI has dipped below the 80-point mark since last September.
Builders have the most confidence in single-family homes in the West, while Northeast home builders are most pessimistic. Looking at the three-month moving averages for regional HMI scores, the Northeast fell seven points to 69, the Midwest dropped one point to 72, and the South fell three points to 83. The West moved up one point to 90.
Twelve months ago, the Northeast had an HMI score of 86. It has experienced the most precipitous decline of the four regions compared to March 2021.
The March HMI recorded the lowest future sales expectations in the survey since June 2020. Builders are reporting growing concerns that increasing construction costs (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market.
While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.
The HMI index gauging current sales conditions fell three points to 86 and the gauge measuring sales expectations in the next six months dropped a “whopping” 10 points to 70, according to a NAHB report. The component charting traffic of prospective buyers posted a two-point gain to 67.
