As The Market Weakens, So Does Builders’ Confidence

Builder confidence plunged in July–parallel with plunging sales– as high inflation and increased interest rates stalled the housing market. 

In a further sign of a weakening housing market, builder confidence in the market for newly built single-family homes posted its seventh straight monthly decline in July, falling 12 points to 55, according to the National Association of Home Builders and Wells Fargo Housing Market Index (HMI) released today.

This marks the lowest HMI reading since May 2020 and the largest single-month drop in the history of the HMI, except for the 42-point drop in April 2020.

“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” NAHB Chairman Jerry Konter, said. “In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”

NAHB Chief Economist Robert Dietz said affordability remains the greatest challenge. 

“Significant segments of the home buying population are priced out of the market. Policymakers must address supply-side issues to help builders produce more affordable housing," Dietz said. 

All components measured by the HMI dropped in July: Current sales conditions dropped 12 points to 64, sales expectations in the next six months declined 11 points to 50 and traffic of prospective buyers fell 11 points to 37.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 65, the Midwest dropped four points to 52, the South fell eight points to 70 and the West posted a 12-point decline to 62.