Economic instability and ongoing affordability issues, caused by increasing material costs, high land prices, and elevated mortgage rates, persistently impact builder sentiment. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly constructed single-family homes decreased by two points to 34 in July, down from a revised figure of 36 in June. Overall sentiment has remained below 40 for 15 consecutive months, marking the longest duration since 2012.
“Many potential buyers remain on the sidelines as they wait for lower mortgage rates, more certainty on inflation and a clearer economic outlook,” said NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio. “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, but these reforms will take time to implement.”
According to the latest HMI survey, some 37% of builders lowered their prices in July, an increase from 35% in June and 32% in May. The average price reduction remained at 6% in July, the same as in the previous month. The use of sales incentives was recorded at 63% in July, a slight increase from 62% in June, marking the 16th consecutive month that this percentage has been 60% or more.
“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 Robert Dietz, Chief Economist for the NAHB. “Looking ahead, the newly enacted housing law is a positive step that will help expand housing supply and lower overall housing costs, although more policy change is needed at the state and local level.”
The report further indicated that all HMI sub-indices experienced declines in July. The HMI index that assesses current sales conditions decreased by one point to 37, while the index that evaluates future sales fell by two points to 43. Additionally, the index tracking the traffic of potential buyers recorded a two-point drop to 23.
Analyzing the three-month moving averages for regional HMI scores, the Northeast experienced a one-point increase to reach 45, the Midwest saw a two-point rise to 45, the South declined by one point to 33, and the West decreased by one point to 26.
Note: 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.
To read more, click here.
