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Homebuilders get hammered: 53% saw sales drop in May

43% of builders surveyed said traffic was down year over year in May

Over half of builders surveyed (53%) reported a year-over-year decrease in sales in May, according to the BTIG/HomeSphere State of the Industry Report published on Monday. This is the largest share of builders to see an annual decrease in sales in the survey’s 56-month history.

“I think it shows a reasonably significant negative change in the market and in the demand for new housing in the last month or so if we compare it to a month or two prior,” Carl Reichardt, a BTIG analyst, said. “The April data saw a deterioration in some of the metrics that matter to us, but the May data was personally surprising in its negativity. So, I think what we’ve seen is a really abrupt change in business.”

The BTIG/HomeSphere study is an electronic survey of approximately 50-100 small- to mid-sized homebuilders that sell, on average, 50-100 homes per year throughout the nation. In May, the survey had 86 respondents.

For the second straight month, the survey recorded an annual dip in traffic. Of the builders surveyed, only 20% reported year-over-year traffic growth, the lowest level since April 2020, at the start of the pandemic. In comparison, 33% of respondents saw traffic jump in April and 67% reported traffic increases in May 2021. In addition, 43% of builders reported a decline in year over year traffic, compared to 27% a month prior.

For sales, 19% of builders reported a year-over-year increase compared to 32% a month prior and 48% a year ago.

Reichardt attributed the decrease to a combination of factors, including higher prices, higher interest rates, consumer concerns about the future of the real estate market, and the lack of new home inventory.

“I think there is a dynamic of frustration at these prices and these rates, combined with thoughts about inflation raising the cost of everything and affordability, as well as lack of choice,” Reichardt said.

Sales and traffic relative to expectations fell sharply, and the better-minus-worse expectations ratio sales and traffic relative to expectations flipped negative this month with 15% of respondents seeing sales better than expected compared to 20% last month, while 34% saw sales as worse than expected. For traffic, 19% saw better traffic than expected and 28% of builders saw traffic as worse than expected, compared to 28% and 22%, respectively in April.

Of the builders served 60% raised some, out or all base prices in May, down from 76% in April and 100% a year ago. Inventive use increased slightly with 16% of builders responded that they increased “most/all” or “some” incentives versus 9% last month.

Despite the decreases in sales and traffic, there was some good news. Roughly two-thirds of builder reported cancellations rates remained constant in May with only 6% reporting “significantly higher” cancellation rates.

“I think we are seeing some broader weakness in the housing market compared to a year ago and also to earlier in the year,” Reichardt said.