Homebuilder confidence continues to slide in August

ConDig (21-Aug-22).  US homebuilder confidence tumbled for an eighth straight month in August as the industry continues to face affordability challenges amid an uptick in interest rates, lingering supply chain issues and high home prices, according to the latest Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

The market for newly built single-family homes dropped six points in August to 49, marking the first time since May 2020 that the index fell below the key break-even measure of 50.

Roughly one-in-five (19%) home builders in the HMI survey reported reducing prices in the past month to increase sales or limit cancellations. The median price reduction was 5% for those reporting using such incentives. 

Moreover, 69% of builders reported higher interest rates as the reason behind falling housing demand, the top impact cited in the survey.

“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” said NAHB chairman Jerry Konter.

“And in a troubling sign that consumers are now sitting on the sidelines due to higher housing costs, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit.”

Current sales conditions dropped seven points to 57, sales expectations in the next six months declined two points to 47 and traffic of prospective buyers fell five points to 32.

The three-month moving averages for regional HMI scores, the Northeast fell nine points to 56, the Midwest dropped three points to 49, the South fell seven points to 63 and the West posted an 11-point decline to 51.

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB chief economist Robert Dietz. 

“The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”

It comes as builder confidence in the market for newly built single-family homes booked its seventh straight monthly decline in July, crumbling 12 points to 55.