A contractor works on a new home under construction in Tucson, Arizona, U.S., Tuesday, Feb. 22, 2022. U.S. new home sales fell in January after a wave of purchases in late 2021, indicating a jump in mortgage rates credits may begin to limit demand.
Rebecca Noble | Bloomberg | Getty Images
Confidence among builders in the country’s single-family housing market fell in July to the lowest level since the start of the pandemic.
The National Association of Home Builders/Wells Fargo Housing Market Index, a survey designed to gauge market conditions, found that homebuilder sentiment fell 12 points to 55. That marked the biggest one-month drop in the 37-year history of survey except for April 2020, when the reading dropped 42 points to 30 after the start of the Covid-19 pandemic.
Any rating above 50 on the index is still considered positive, but sentiment has already fallen 24 points since March, when mortgage rates began to rise. The average rate on a 30-year fixed mortgage has nearly doubled since January and is now hovering just under 6%.
Sentiment hit 80 in July last year after reaching a record high of 90 in November 2020 as the pandemic sparked a wave of home buying among people seeking more space in less urban areas. Inflation and recession concerns are now among the factors weighing on builder sentiment.
Of the index’s three components, builder sentiment about current sales conditions fell 12 points to 64, while sales expectations for the next six months fell 11 points to 50 and buyer traffic sentiment fell 11 points to 37. The latest component is now solidly negative territory.
“Affordability is the biggest challenge facing the housing market,” said Robert Dietz, NAHB’s chief economist. “Significant segments of the homebuying population have been priced out of the market.”
Some major publicly traded homebuilders addressed affordability in recent earnings reports, saying they would work with buyers to accommodate tightening budgets. But the price of a newly built home in May was $449,000, up 15% from a year ago. This may change in the coming months.
In another sign of a softening market, 13 percent of builders in HMI’s survey reported cutting home prices in the past month to boost sales or limit cancellations, according to Jerry Conter, NAHB chairman and Savannah homebuilder , Georgia.
“Production bottlenecks, rising housing costs and high inflation are causing many builders to halt construction as the cost of land, construction and financing exceeds the home’s market value,” Conter said.
In the Northeast, three-month moving average builder sentiment fell 6 points to 65. In the Midwest, sentiment fell 4 points to 52, and sentiment in the South fell 8 points to 70. The West saw the biggest drop, falling 12 points to 62.
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