Despite strong buyer demand, builder sentiment continued to slip in February as the industry grapples with building material production bottlenecks that are raising construction costs and delaying projects.
Builder confidence in the market for newly built single-family homes moved one point lower to 82 in February, marking the second straight month that confidence levels declined by a single point, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The index also was one point lower than the level forecast in last month’s index.
Despite the monthly declines, the HMI has posted solid readings at or above the 80-point mark for the past five months.
The HMI rates the relative level of current and future single-family home sales, using data compiled from a survey of approximately 900 home builders. Any reading above 50 indicates a favorable outlook on home sales; any reading below indicates a negative outlook.
Disruptions in material production are so severe that many home builders wait months to receive cabinets, garage doors, countertops, and appliances. The delivery delays raise construction costs, often pricing prospective buyers out of the market.
Residential construction costs are up 21% year-over-year. Higher interest rates in 2022 are also expected to further reduce housing affordability, even as demand remains solid due to a lack of resale inventory.
In a separate report, the NAHB said rising home prices and interest rates are taking a toll on housing affordability, with seven out of 10 households lacking the income to qualify for a mortgage under standard underwriting criteria.
According to the NAHB, 87.5 million households — or about 69% of all U.S. households — are unable to afford a new median-priced home.
NAHB said the underwriting criterion used to determine affordability is that the sum of mortgage payments; property taxes, and home & private mortgage insurance premiums during the first year is no more than 28% of the household’s income. Key assumptions include a 10% down payment, a 30-year, fixed-rate mortgage at an interest rate of 3.5%, and an annual premium starting at 73 basis points for private mortgage insurance.
NAHB’s recently released 2022 priced-out estimates also show that if the median new home price increases by $1,000, another 117,932 households would be priced out of the market. The 117,932 households would qualify for the mortgage before the price increase, but not afterward, NAHB said.
Derived from a monthly survey NAHB has been conducting 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 where any number over 50 indicates that more builders view conditions as good than poor.
The HMI index gauging current sales conditions increased one point to 90; the gauge measuring sales expectations in the next six months fell two points to 80, and the component charting traffic of prospective buyers saw a four-point decline to 65.
For the three-month moving averages for regional HMI scores, the Northeast increased three points to 76, the West rose one point to 89, the Midwest fell one point to 73, and the South edged one point lower to 86.
The full report is available at www.nahb.org.
