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Homebuilder confidence drops for fifth consecutive month

NAHB HMI saw an eight-point month-over-month decrease in May

Homebuilder confidence continues to drop. For the fifth consecutive month, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) determined market conditions for newly built single-family homes decreased, according to a report released Tuesday.

In May, the index fell eight points from its April reading of 77 to 69 points. It’s the index’s lowest reading since June 2020.

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 in which any number over 50 indicates more homebuilders view conditions as more favorable than not.

NAHB chief economist Robert Dietz cited rising building material costs, which are up 19% year over year, ongoing home price appreciation and rapidly increasing mortgage rates, which have now reached a 12-year high, as reasons why builder confidence is slipping.

“The housing market is facing growing challenges,” Dietz said in a statement. “Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.”

In April, NAHB chairman Jerry Konter called on lawmakers to take proactive steps to ameliorate supply chain issues to reduce building costs and allow builders to increase production in a cost-effective manner.

The White House released its Housing Supply Action Plan Monday, which it said will “ease the burden of housing costs over time, by boosting the supply of quality housing in every community.”

Konter said he is pleased the Biden administration is taking the issue seriously.

“Housing leads the business cycle and housing is slowing,” Konter said. “The White House is finally getting the message and yesterday released an action plan to address rising housing costs that emphasizes a very important element long-advocated by NAHB – the need to build more homes to ease the nation’s housing affordability crisis.”

The three other indexes monitored by the NAHB also fell in May. The gauge measuring current sales conditions fell eight points, month over month, to 78, while the component analyzing sales expectations for the next six months fell to 63 points and the index charting traffic of prospective buyers posted a nine-point drop to 52 points.

Regionally, the three-month moving averages for regional HMI scores fell in the Midwest (62), the South (80) and the West (83), while the Northeast held steady at 72.

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