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Homebuilder confidence falls as sales traffic slows

Despite low existing inventory, homebuilders are seeing a drop off in sales traffic

For the fourth consecutive month, homebuilder confidence in for newly build single-family homes has dropped, according to the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI), which was released on Monday.

In April, the index fell to 77, two points below its March reading.

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.

Although existing housing inventory remains low and buyer demand is still elevated compared to its pre-pandemic level, homebuilders are reporting a decline in sales traffic. Experts believe rapidly rising home prices, construction costs and mortgage rates are to blame for the drop in sales traffic.

“Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market,” NAHB chairman Jerry Konter said in a statement.

Mortgage rates have risen more than 1.9 percentage points since the start of the year, eclipsing the 5% threshold. This is the highest mortgage rates have been in more than a decade.

Konter called on lawmakers to take proactive steps to ameliorate supply chain issues in order to reduce building costs and allow builders to increase production in a cost-effective manner.

“The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” said NAHB Chief Economist Robert Dietz.

Despite the month over month drop in homebuilder confidence, the gauge measuring sales expectations for the next six months rose three points in April to a reading of 73, after dropping 10 points in March.

Regionally, the three-month moving averages for regional HMI scores fell in the Midwest (69), South (82) and the West (89), dropping three, two and one points, respectively. The Northeast was the only region to see and increase with a gain of one point, bringing the index to a reading of 69.