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Homebuilder sentiment drops for 6th consecutive month

NAHB HMI reaches lowest level since June 2020

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

In June, builder confidence in the market for newly built single-family homes fell two points from a month prior to 67. It’s the lowest HMI 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 then are used to calculate an index, in which any number greater than 50 indicates more homebuilders view conditions as favorable than not.

“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” said Jerry Konter, NAHB chairman, according to a news release.

The entry-level market has been particularly affected by declines in housing affordability —  according to Konter and NAHB chief economist Robert Dietz — as building material and construction costs are up 19% year over year.

Dietz also cited rising mortgage rates as a reason for declining builder confidence: “On the demand side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure of the HMI.”

Three other indices monitored by the NAHB also fell in June. The gauge measuring current sales conditions fell one point, month over month, to 77, while the component analyzing sales expectations for the next six months fell to 61 points and the index charting traffic of prospective buyers posted a five-point drop to 48 points. It’s the first time this gauge has fallen below the break-even level of 50 since June 2020.

Regionally, the three-month moving averages for HMI scores fell in all four regions to 56 in the Midwest, 78 in the South, 74 in the West and 71 in the Northeast.

Yet another indicator of deteriorating conditions in the market for newly built single family homes, 53% of homebuilders surveyed in the BTIG/HomeSphere State of the Industry Report, published earlier this week, saw year-over-year decreases of sales in May. It represents the largest share of builders to see an annual decrease in sales in the survey’s 56-month history.

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