Home builders are seeing hard times ahead as the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) measuring builder confidence fell to its lowest reading since June of 2020, responding to an increase in mortgage rates and a slowing of prospective buyers, according to NAHB. The index dropped to 67, down two points from last month and 16 since the start of the year.
All three measurements that make up the HMI fell this month. The index tracking prospective buyers decreased five points to 48, the index following current sales conditions down one point to 77, and the index gauging sales expectations in the next six months off two points to 61.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 71, the Midwest dropped six points to 56, the South fell two points to 78 and the West posted a nine-point decline to 74.
“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” said NAHB Chairman Jerry Konter in a statement. “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,” said NAHB Chief Economist Robert Dietz in a statement. “Residential construction material costs are up 19% 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.”