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Despite queue of buyers, homebuilder sentiment drops again

The HMI hits lowest point since last fall

For the first time since September 2021, homebuilder confidence in the market for newly built single-family homes has dropped below the 80-point mark, according to the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI), which was released on Wednesday.

In March, the index dropped to 79, two points below its February reading. This is the fourth straight month of homebuilder sentiment decline.

The NAHB/HMI report is based on a monthly survey of NAHB members, in which respondents are asked to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index where any number over 50 indicates that more homebuilders view conditions as good than poor.

While buyer demand remains high, experts say ongoing lumber and building material supply side issues, labor shortages, rising construction costs and expectations of higher interest rates are contributing to this downturn in homebuilder confidence.

“While builders continue to report solid buyer traffic numbers, helped by historically low existing home inventory and a persistent housing deficit, increasing development and construction costs have taken a toll on builder confidence,” NAHB chairman Jerry Konter said in a statement.

Konter called on lawmakers to enact policies that ease supply-chain issues and improve homebuilders’ access to lumber and other building materials.

The HMI index gauging current sales conditions fell three points to 86, while the gauge measuring sales expectations in the next six months fell an astounding 10 points to 70. The component tracking traffic of prospective buyers, however, rose two points to 67.

“The March HMI recorded the lowest future sales expectations in the survey since June 2020,” NAHB chief economist Robert Dietz said in a statement. “Builders are reporting growing concerns that increasing construction costs (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market. While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”

Regionally, the three-month moving averages for regional HMI scores fell in the Northeast (69), Midwest (72) and South (83), dropping seven, one and three points respectively. The West was the only region to see an increase with a gain of one point, bringing the index reading to 90.

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