With ongoing home price increases, rapidly rising interest rates and higher construction costs, the National Association of Homebuilder’s (NAHB) measurement of confidence and sentiment has hit a seven-month low after dropping every month this calendar year, as most experts expect the historic inventory crisis to last at least through the rest of 2022 driven particularly by a dearth of entry-level homes,
“The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” said NAHB Chief Economist Robert Dietz in a statement.
The (NAHB)/Wells Fargo Housing Market Index (HMI), which has been used since 1985 to measure how builders feel about the single-family home market, fell two points to 77 this month, after reaching 84 in December of last year.
Any reading above 50 is considered positive, according to NAHB. The HMI reached a recent peak of 90 in November of 2020.
Before Russia’s invasion of Ukraine and the subsequent global economic disruption, most economists and industry insiders predicted a moderating but still growing market this year. While the war is not necessarily a huge factor, a combination of interest rate hikes and affordability challenges have created more and more uncertainty about the immediate future.
“Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market,” said NAHB Chairman Jerry Konter in a statement. “Policymakers must take proactive steps to fix supply chain issues that will reduce the cost of development, stem the rise in home prices and allow builders to increase production.”
The takeaway:
With home sales down and mortgage applications expected to fall in 2022, the chance of another booming year like 2021 seems to be essentially zero.
On the positive side, though, the aspect of the HMI measuring current sales conditions remains slightly higher than the overall index, clocking in at 85, meaning the spring market might not be reflecting these new shifts. Expectations for sales over the next six months also bounced back slightly (after falling ten points last month), rebounding three points to 73.
Regionally, the HMI found builder confidence is highest in the West at 89 and lowest in the Midwest at 69. The Northeast actually saw a small increase in builder sentiment this month (after a seven-point slide in March), ticking up one point to 72, while the South fell two points to 82.
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas, jwilliams@rismedia.com.
