WASHINGTON, DC — In a sign that the housing market is slowing, builder confidence posted a steep drop in May as growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation “are taking a toll on buyer demand,” the National Association of Home Builders said.
Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the NAHB/Wells Fargo Housing Market Index (HMI) released yesterday. This is the fifth straight month that builder sentiment has declined and the lowest reading since June 2020, the NAHB said.
“The housing market is facing growing challenges,” said Robert Dietz, chief economist for the Washington, DC-based NAHB. “Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high, and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.”
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder 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 traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. All three HMI indices posted major losses in May, the NAHB reported.