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Housing Market At 'Inflection Point' As Home Builder Confidence Falls Again

David Krechevsky
Apr 18, 2022
construction pic

NAHB/Wells Fargo Housing Market Index falls for fourth straight month.

KEY TAKEAWAYS
  • Despite low inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as interest rates rose.
  • Mortgage interest rates have jumped more than 1.9 percentage points since the start of the year and currently stand at 5%, the highest level in more than a decade.

Rapidly rising interest rates combined with ongoing home price increases and higher construction costs continue to take a toll on builder confidence and housing affordability, the National Association of Home Builders said today.

Robert Dietz, NAHB’s chief economist, says the housing market now faces “an inflection point, as an unexpectedly quick rise in interest rates, rising home prices, and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market.”

According to the NAHB/Wells Fargo Housing Market Index, released this morning, builder confidence in the market for newly built single-family homes dipped two points lower to 77 in April, the fourth straight month that builder sentiment has declined.

Mortgage interest rates have jumped more than 1.9 percentage points since the start of the year and currently stand at 5%, the highest level in more than a decade.

“Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market,” said NAHB Chairman Jerry Konter, a builder and developer from Savannah, Ga. “Policymakers must take proactive steps to fix supply chain issues that will reduce the cost of development, stem the rise in home prices and allow builders to increase production.”

Derived from a monthly survey NAHB has conducted for more than 35 years, 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 in which any number over 50 indicates that more builders view conditions as good than poor.

The HMI index gauging current sales conditions fell two points to 85, and the component charting traffic of prospective buyers posted a six-point decline to 60. The gauge measuring sales expectations in the next six months increased three points to 73, following a 10-point drop in March.

Looking at the three-month moving averages for regional HMI scores, the Northeast posted a one-point gain to 72, while the Midwest dropped three points to 69, the South fell two points to 82, and the West edged one-point lower to 89.

HMI tables can be found at nahb.org/hmi.

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