Builder Confidence Dropped for the Eighth Consecutive Month

Builder confidence fell for the eighth consecutive month in August, as rising interest rates, ongoing supply chain issues, and high home prices exacerbate housing affordability issues.

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly-built single-family homes fell six points in August to 49, marking the first time since May 2020 that the index fell below the key break-even measure of 50.

“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” said NAHB Chairman Jerry Konter, a Savannah, Georgia-based home builder and developer.

“And in a troubling sign that consumers are now sitting on the sidelines due to higher housing costs, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit.”

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” NAHB Chief Economist Robert Dietz stated.

“The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”

In the HMI survey, roughly one-in-five (19%) home builders reported lowering prices in the previous month in order to increase sales or limit cancellations.

For those who reported using such incentives, the median price reduction was 5%. Meanwhile, 69% of builders cited higher interest rates as the primary cause of falling housing demand in the survey.

The NAHB/Wells Fargo HMI is derived from a monthly survey that NAHB has been conducting for more than 35 years, and it 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.”

In August, all three HMI components fell, and each fell to its lowest level since May 2020.

Current sales conditions fell seven points to 57, sales expectations for the next six months fell two points to 47, and prospective buyer traffic fell five points to 32.

In terms of three-month moving averages for regional HMI scores, the Northeast dropped nine points to 56, the Midwest three points to 49, the South seven points to 63, and the West dropped 11 points to 51.