Weakening Builder Confidence Points to Economic Troubles Ahead
Rising inflation and higher mortgage rates are slowing traffic of prospective home buyers and putting a damper on builder sentiment. Builder confidence in the market for newly built single-family homes posted its sixth straight monthly decline in June, falling two points to 67, according to the National Association of Home Builders/Wells Fargo Housing Market Index. This marks 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,” says Jerry Konter, NAHB chairman. “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 need to enact policies that will support the supply-side of the housing market as costs continue to climb.”
“The housing market faces both demand-side and supply-side challenges,” says Robert Dietz, NAHB chief economist. “Residential construction material costs are up 19 percent 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, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure of the HMI.”
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.