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Builder confidence continued to slide for the sixth consecutive month in June, as rising inflation and higher mortgage rates curtailed prospective homebuyers, the National Association of Home Builders (NAHB) said today.
Calling it a troubling sign for the housing market, NAHB said its NAHB/Wells Fargo Housing Market Index (HMI), which tracks builder confidence in the market for newly built single-family homes, fell two points in June to 67 — the lowest HMI reading since June 2020.
“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high-inflation, slow-growth economic environment,” said NAHB Chairman Jerry Konter, a builder and developer from Savannah, Ga. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates.”
“Government officials,” he added, “need to enact policies that will support the supply-side of the housing market as costs continue to climb.”
NAHB Chief Economist Robert Dietz agreed. “The housing market faces both demand-side and supply-side challenges,” he said. “Residential construction material costs are up 19% year-over-year, with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown.
“On the demand-side of the market,” he continued, “the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective homebuyers, as reflected by the decline for the traffic measure of the HMI.”
Derived from a monthly survey NAHB has conducted for more than 35 years, the 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 can range between 0 and 100.
All three HMI indices posted declines in June:
- The component charting traffic of prospective buyers fell five points to 48, marking the first time this gauge has fallen below the breakeven level of 50 since June 2020.
- The HMI index gauging current sales conditions fell one point to 77, and
- The gauge measuring sales expectations in the next six months fell two points to 61.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 71, the Midwest dropped six points to 56, the South fell two points to 78, and the West posted a nine-point decline to 74.
The HMI results were released after NAHB officials met last week with officials of the U.S. Department of Housing and Urban Development in Washington, D.C., to discuss policies that could help the housing industry.
NAHB Chairman Jerry Konter set the tone for the conversation by noting that “housing affordability is the top priority of NAHB members and we feel it should be the top priority of lawmakers and government officials.”
HUD Secretary Marcia Fudge echoed Konter’s remarks. “We need to rethink housing," she said. “If we do not address the housing crisis right now, we all will have failed.”
The meeting, held at the National Building Museum in Washington, served as a kickoff event for the Innovative Housing Showcase, a three-day event on the National Mall featuring new building technologies and housing solutions to make housing more innovative, resilient and affordable.