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Homebuilder confidence continues sharp decline, reveals increasingly pessimistic outlook

NAHB HMI reaches lowest level since May 2020

Homebuilder confidence dropped yet again in July, marking the seventh consecutive month of an increasingly pessimistic outlook, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report, released Monday.

In July, builder sentiment in the market for newly built single-family homes fell 12 points from a month prior, to 55. It’s the lowest HMI reading since May 2020 and the largest single-month drop in the history of the index — with the exception of a 42-point drop in April 2020, a time rife with uncertainty amid the onset of the COVID-19 pandemic.

The NAHB/ HMI report is based on a monthly survey of NAHB members, in which respondents are asked to rate both current market conditions for the sale of new homes and expected conditions for the next six months, as well as traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index, in which any number greater than 50 indicates more homebuilders view conditions as favorable than not.

“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” said NAHB Chairman Jerry Konter, according to a statement.

But 13% of builders surveyed said reducing home prices in the past month, “had helped to bolster sales and/ or limit cancellations,” Konter noted.

Robert Dietz, chief economist of the NAHB, said affordability is the greatest challenge the housing market faces.

“Significant segments of the home-buying population are priced out of the market,” Dietz said. “Policymakers must address supply-side issues to help builders produce more affordable housing.”  

Three other indices monitored by the NAHB also fell in July. The gauge measuring current sales conditions fell 12 points, month over month, to 64, while the component analyzing sales expectations for the next six months fell 11 points to a reading of 50 and the index charting traffic of prospective buyers posted an 11-point drop, to 37 points.

Regionally, the three-month moving averages for HMI scores fell in all four regions, to: 52 in the Midwest, 70 in the South, 62 in the West and 75 in the Northeast.