Builder sentiment declined every month in 2022
Washington, D.C. – According to the National Association of Home Builders (NAHB), high mortgage rates, increased construction costs well above inflation and declining consumer demand due to worsening affordability have dragged down builder sentiment every month in 2022 .
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes fell for the 12th straight month in December, dropping two points to 31 points. the lowest confidence value since mid-2012, excluding the outbreak of the pandemic in spring 2020.
“In this environment of high inflation and high mortgage rates, builders are struggling to keep housing affordable for homebuyers,” said Jerry Konter, NAHB president and home builder and developer from Savannah, Georgia. “Our latest survey shows that 62% of builders have incentives to boost sales, including buying off mortgage interest deductions, paying buyer points and offering price reductions. But with construction costs rising more than 30% since the inflation started to rise at the beginning of the year, there is little room for builders to lower prices Only 35% of builders lowered house prices in December, slightly down from 36% in November The average price reduction was 8% , compared to 5% or 6% earlier in the year.
According to NAHB chief economist Robert Dietz, mortgage rates have fallen from more than 7% in recent weeks to about 6.3% and for the first time since April, builders recorded an increase in future sales expectations. “The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we may be approaching the bottom of the construction sentiment cycle,” Dietz said.
Dietz also added that in this weak economic climate, builders still need to plan ahead a year or more when considering land and construction timelines. existing nationwide housing shortage of 1.5 million units and future, lower mortgage rates expected with the Fed easing monetary policy in 2024,” he said.
Derived from a monthly survey that NAHB has conducted for more than 35 years, the NAHB/Wells Fargo HMI measures builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” ” The survey also asks builders to rate potential buyers’ traffic as “high to very high,” “medium,” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index, with any number above 50 indicating that more builders view conditions as good than bad.
According to the NAHB, the HMI index that measures current sales conditions fell three points to 36 and traffic from potential buyers held steady at 20. The component that charts sales expectations over the next six months rose four points to 35.
Looking at three-month moving averages for regional HMI scores, the Northeast fell five points to 37, the Midwest fell four points to 34, the South fell six points to 36, and the West fell three points to 26.