Despite positive news for the building sector with the recent passing of the 21st Century Road to Housing Act, this month’s homebuilder confidence report dropped again for the second month and has remained in negative territory for its longest stretch since 2012.
According to this month’s National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which measures overall builder sentiment toward housing market conditions on a scale ranging between 0 and 100, homebuilder confidence came in at 34 in July, down from an upwardly revised reading of 36 in June. A reading above 50 is an indication that the majority of builders feel confident about the current and near-term outlook for housing. A reading below 50 indicates negative sentiment among builders.
As measured by the index, current sales conditions for single-family homes fell one point month-over-month to 37. Traffic from prospective buyers also dropped two points to 23. Sales expectations in the next six months dropped two points to 43.
The report shows sentiment has remained below 40 for 15 consecutive months—the longest such stretch since 2012.
“With the HMI below 40 for 15 straight months, affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market,” said NAHB Chief Economist Robert Dietz.
Over one-third (37%) of homebuilders cut prices in July, compared to 35% in June and 32% in May. However, the average price reduction of 6% was unchanged month-over-month.
NAHB’s press release says that economic uncertainty and persistent affordability challenges—driven by rising material prices, high land costs and elevated mortgage rates—continue to weigh on builder sentiment.
NAHB Chairman Bill Owens and Dietz both pointed to the 21st Century ROAD to Housing Act as a step in the right direction, although the results will take time.
“The recently enacted 21st Century ROAD to Housing Act contains important provisions on land-use and zoning, regulatory reform and financing tools that address obstacles facing builders and buyers,” said Owens, “but these reforms will take time to implement.”
“Looking ahead, the newly enacted housing law is a positive step that will help expand housing supply and lower overall housing costs,” said Dietz, “although more policy change is needed at the state and local level.
Regionally, homebuilder confidence was mixed across the four major U.S. census regions.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 45, the Midwest increased two points to 45, the South fell one point to 33 and the West dropped one point to 26.
