The headline NAHB market index fell in June from 55 to 49, the eighth straight month of declines marking the worst stretch since the housing market collapsed in 2007, marking the first time since May 2020 that the index fell below the key break-even measure of 50. The reading was not only below consensus of an unchanged 55 print, but was worse than the most pessimistic estimate in the Bloomberg survey of economists.
All sub-indices tumbled back to levels last seen during the depth of the COVID crash and, excluding that, the lowest level since 2014, as ongoing supply chain problems and high home prices continued to exacerbate housing affordability challenges. Current sales conditions dropped seven points to 57, sales expectations in the next six months declined two points to 47 and traffic of prospective buyers fell five points to 32. The group’s gauge of prospective buyer traffic fell five points to 48, the lowest since June 2020. The measure of present sales also declined to a two-year low, and sales expectations for the next six months dropped to the lowest since May 2020.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell nine points to 56, the Midwest dropped three points to 49, the South fell seven points to 63 and the West posted an 11-point decline to 51.
“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga. “And in a troubling sign that consumers are now sitting on the sidelines due to higher housing costs, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit.”
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz. “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”
Roughly one-in-five (19%) home builders in the HMI survey reported reducing prices in the past month to increase sales or limit cancellations. The median price reduction was 5% for those reporting using such incentives. Meanwhile, 69% of builders reported higher interest rates as the reason behind falling housing demand, the top impact cited in the survey.
Despite the ongoing collapse, homebuilder sentiment has a long way to go to catch down to homebuyer sentiment...
There are signs that affordability may be improving. About one in five builders in the survey reported reducing prices in the past month to increase sales or limit cancellations. And while mortgage rates are still nearly double what they were a year ago, they’ve come down in recent weeks.
“As signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” Dietz said.