Builder confidence in the market for newly built single-family homes declined 6 points in May to 45, its first decline since November, according to the National Association of Home Builders/Wells Fargo Housing Market Index released today.
Mortgage rates averaging above 7% for the past four weeks were the reason for the plunge in confidence. “The market has slowed down since mortgage rates increased, and this has pushed many potential buyers back to the sidelines,” stated NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “We are also concerned about the recent codes rules that require HUD and USDA to insure mortgages for new single-family homes only if they are built to the 2021 International Energy Conservation Code. This will further increase the cost of construction in a market that sorely needs more inventory for first-time and first-generation buyers.”
The May HMI survey showed that 25% of builders cut home prices to bolster sales in May, and the average price reduction in May was 6% for the 11th straight month.
All three HMI component indices posted declines in May. The HMI index charting current sales conditions in May fell six points to 51, the component measuring sales expectations in the next six months fell nine points to 51 and the gauge charting traffic of prospective buyers declined four points to 30.
“A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment,” said NAHB Chief Economist Robert Dietz. “The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing.”
The HMI is derived from a monthly survey that NAHB has conducted for more than 35 years; it gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” Scores for each component are used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
HMI tables can be found at nahb.org/hmi.
