After months and months of unbridled optimism, homebuilders are increasingly worried about the housing market as the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) measuring builder confidence remains in free-fall, approaching an overall negative attitude toward the future.
A 12-point drop in July was the largest single decline in the index since the onset of the pandemic, moving close to the equivalent of bear market territory at 55. Anything below 50 indicates that more builders view conditions as poor than good.
Key findings:
All three HMI components posted significant declines in July. The metric measuring current sales conditions dropped 12 points to 64, the measurement tracking sales expectations for the next six months declined 11 points to 50 and the index traffic of prospective buyers fell 11 points to a dismal 37.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 65, the Midwest dropped four points to 52, the South fell eight points to 70 and the West posted a 12-point decline to 62.
The takeaway:
“Affordability is the greatest challenge facing the housing market,” said NAHB Chief Economist Robert Dietz in a statement. “Significant segments of the home-buying population are priced out of the market. Policymakers must address supply-side issues to help builders produce more affordable housing.”
“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” said NAHB Chairman Jerry Konter in a statement. “In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”
