Homebuilder confidence plunges on interest rate hikes, growing affordability issues

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WASHINGTON — In a sign the housing market is now slowing, builder confidence fell sharply in May as growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases materials and continued home price appreciation take a toll at the buyer’s request.

Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released Tuesday, May 17. It’s the fifth month in a row that builder sentiment has declined and the lowest reading since June 2020.

“Housing leads the business cycle and housing is slowing down,” said NAHB President Jerry Konter, a builder and developer from Savannah, Ga. “The White House finally gets the message and released an action plan yesterday to address rising housing costs which emphasizes a very important element long advocated by NAHB – the need to build more homes to alleviate the nation’s housing affordability crisis.

“The housing market is facing growing challenges,” said NAHB chief economist Robert Dietz. “Building material costs are up 19% from a year ago, in less than three months mortgage rates are at a 12-year high and, based on current affordability conditions, less “50% of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are particularly affected by this rapid rise in mortgage rates.”

Derived from a monthly survey conducted by NAHB for more than 35 years, the NAHB/Wells Fargo HMI rates builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” passable” or “poor.” The survey also asks builders to rate traffic from potential buyers as “high to very high”, “medium” or “low to very low”. The scores for each component are then used to calculate a seasonally adjusted index where any number above 50 indicates that more builders rate the conditions as good than bad.

All three HMI indices posted significant losses in May. The HMI index assessing current selling conditions fell eight points to 78, the gauge measuring sales expectations over the next six months fell 10 points to 63 and the component representing traffic from potential buyers recorded an increase. down nine points to 52.

Looking at the three-month rolling averages of regional HMI scores, the Northeast was flat at 72 while the Midwest fell seven points to 62, the South fell two points to 80 and the West recorded a down six points to 83.

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