US builder confidence plunges as affordability issues rise: NAHB

Builder confidence plunged in July as high inflation and rising interest rates stalled the housing market by significantly slowing sales and buyer traffic. In a further sign of a weakening housing market, builder confidence in the market for newly built single-family homes posted its seventh consecutive monthly decline in July, falling 12 points to 55, according to the National Association of Home Builders (NAHB). /Wells Fargo Housing Market Index (HMI).

This is the lowest IHM reading since May 2020 and the largest one-month decline in IHM history, except for the 42-point drop in April 2020.

“Production bottlenecks, rising home construction costs and high inflation are causing many builders to halt construction as the cost of land, construction and financing exceeds the market value of the home” , said NAHB President Jerry Konter, a builder and developer from Savannah, Ga. over the past month to support sales and/or limit cancellations.

“Affordability is the biggest challenge facing the housing market,” said NAHB Chief Economist Robert Dietz. “Significant segments of the homebuyer population are out of the market. Policymakers need to address supply-side issues to help builders produce more affordable homes.

Derived from a monthly survey conducted by NAHB for more than 35 years, the NAHB/Wells Fargo HMI rates builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” passable” or “poor.” The survey also asks builders to rate traffic from potential buyers as “high to very high”, “medium” or “low to very low”. The scores for each component are then used to calculate a seasonally adjusted index where any number above 50 indicates that more builders rate the conditions as good than bad.

All three components of the HMI recorded declines in July: current selling conditions fell 12 points to 64, sales expectations over the next six months fell 11 points to 50 and traffic from potential buyers fell 11 points to 37.

Looking at the three-month rolling averages of regional HMI scores, the Northeast fell six points to 65, the Midwest fell four points to 52, the South fell eight points to 70, and the West recorded down 12 points to 62.

HMI tables are available at nahb.org/hmi.

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