Builder sentiment remains subdued as rising material costs, elevated mortgage rates and ongoing affordability challenges continue to strain the housing market.
Builder confidence in the market for newly built single-family homes fell two points to 35 in June, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released June 15. This is the 14th straight month that sentiment has remained below 40, a streak not seen since 2011-2012 during the foreclosure crisis.
The somber June numbers follow a slight uptick in confidence for May.
“With the nation short about 1.2 million homes, builder sentiment will remain soft until barriers are eased and conditions improve for home building,” said NAHB Chairman Bill Owens in a statement. “Congress can help by passing the major housing package now before the Senate, along with the CONSTRUCTS Act to address the construction labor shortage and the Energy Choice Act to prevent state and local bans on natural gas in new homes.”
The “major housing package” seemingly refers to the bipartisan omnibus bill that has wound a somewhat convoluted path through Congress, and currently needs to be reconciled by the Senate after undergoing changes in the House.
“Costly and inefficient regulatory policy is clearly impeding the ability of builders to increase the housing supply,” said NAHB Chief Economist Robert Dietz. “According to a new NAHB study, government regulation, taxes, fees and other costs add more than 26% to the price of an average single-family home. Easing permitting bottlenecks, density limits and inefficient zoning rules would help reduce costs and support the housing growth the nation needs.”
The latest HMI survey also revealed that 35% of builders cut prices in June, up from 32% in May. The average price reduction was 6% in June, the same rate as the previous month. The use of sales incentives was 62% in June, up slightly from 61% in May, marking the 15th consecutive month this share has reached 60% or higher.
Derived from a monthly survey that NAHB has been conducting for more than 40 years, the NAHB/Wells Fargo HMI gauges builder 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 of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The HMI index gauging current sales conditions fell two points to 38 in June, the index measuring future sales held steady at 45 and the index charting traffic of prospective buyers remained unchanged at 25.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose two points to 44, the Midwest held constant at 43, the South fell two points to 33 and the West dropped one point to 27.
