U.S. homebuilder confidence plunges in July as rising costs slow sales

FILE – Contractors stand on the roof of a house under construction in Louisville, Kentucky, July 1, 2022. Photographer: Luke Sharrett/Bloomberg via Getty Images

Homebuilder confidence suffered a near-record drop in July as high inflation and rising mortgage rates slowed the housing market by slowing sales and discouraging potential buyers.

The National Association of Home Builders’ (NAHB) Housing Market Index (HMI) was released on Monday, showing how builder confidence in the market for newly built single-family homes fell to 55.

It was the seventh consecutive monthly decline and a 12-point drop since June, indicating a further sign of weakening in the housing market, according to the NAHB.

July’s score marked the lowest index since April 2020 – which was 30 – when most of the country was in some form of lockdown at the height of the COVID-19 pandemic. It also represented the largest one-month drop in HMI history, except for the 42-point drop in April 2020.

The HMI can vary between 0 and 100. Readings above 50 mean more builders see market conditions as good rather than bad – but experts said July’s reading of 55 still represents further signs of a downturn. a weakening of the housing market.

“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 Savannah builder and real estate developer. Ga., said in a statement.

“In another sign of a slowing market, 13% of builders in the HMI survey said they had cut home prices in the past month to support sales and/or limit cancellations,” Konter added.

What is the NAHB Housing Market Index?

The index is based on a monthly survey of members of the National Association of Home Builders designed to get a sense of the single-family housing market.

The survey asks respondents to rate market conditions for new home sales now and in the next six months, as well as traffic from potential new home buyers.

The NAHB/Wells Fargo HMI rates builders’ 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 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 a majority of builders feel good about selling their home in the housing market.

The HMI, which started in 1985, fell to an all-time high of 8 in January 2009. It set an all-time high of 90 in November 2020, according to statistics.

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Current housing market: “Affordability is the biggest challenge”

All three components of the homebuilder index saw declines in July 2022, according to the NAHB. Current selling conditions fell 12 points to 64, expectations to sell over the next six months fell 11 points to 50 and traffic from potential buyers fell 11 points to 37.

The NAHB also shared three-month averages for different regions of the United States. The Northeast was down six points at 65, the Midwest was down four points at 52, the South was down eight points at 70 and the West was down 12 points at 62.

The housing market, a crucial part of the economy, is slowing as homebuyers face much higher financing costs than a year ago following a rapid rise in mortgage rates. Sales of previously occupied U.S. homes slowed for the fourth consecutive month in May and are expected to continue that trend when the National Association of Realtors releases its June snapshot this week.

Meanwhile, the average rate on a 30-year home loan jumped to 5.51% last week, according to mortgage buyer Freddie Mac. A year ago, the 30-year fixed rate mortgage averaged 2.88%.

“Affordability is the biggest challenge facing the housing market,” NAHB chief economist Robert Dietz said in a statement. “Significant segments of the homebuyer population are being shut out of the market. Policymakers need to address supply issues to help builders produce more affordable housing.”

First-time buyers accounted for 27% of transactions in May, down from 28% in April and 31% in May 2021, the National Association of Realtors said.

Real estate investors and other buyers able to buy a home with just cash, avoiding the need to rely on financing, accounted for 25% of all sales in May, compared to 26% in April, the band.

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This story was reported from Cincinnati. The Associated Press contributed.

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