Builder Confidence Falls, Signaling A Market Slowdown

Builder confidence fell eight points in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

The HMI registered a reading of 69 in May, a significant drop from April. This is the fifth consecutive month of decline and the lowest reading since June 2020.

The low reading suggests that the housing market is slowing thanks to affordability challenges.

“The housing market is facing growing challenges. 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,”  said NAHB Chief Economist Robert Dietz.

Dietz said entry-level and first-time homebuyers are especially bearing the brunt of this rapid rise in mortgage rates.

Building material costs remain a serious problem for affordability.

A NAHB analysis of the PPI found that building materials prices have risen 4.9% since the start of 2022, 19.2% YOY, and 35.6% since the start of the pandemic.

Each of the three HMI indices saw losses in May. The index that measures current sales condition dropped 8 points to 78, while the sales expectation gauge for the next six months dropped 10 points to 63 and the prospective buyer traffic gauge fell 9 points to 52.

Confidence held steady in the Northeast. The largest decline came from the Midwest and West, with a 7 point and 6 point drop, respectively. The South’s reading fell 2 points.

The Biden administration has outlined a plan to take on the affordable housing crisis which includes expanding financing for development and working with the private sector to alleviate supply chain issues.  

The plan says the White House will “[w]ork with the private sector to address supply chain challenges and improve building techniques to finish construction in 2022 on the most new homes in any year since 2006.”

“The White House is finally getting the message and yesterday released an action plan to address rising housing costs that emphasizes a very important element long-advocated by NAHB – the need to build more homes to ease the nation’s housing affordability crisis,” said NAHB Chairman Jerry Konter, a builder and developer from Savannah, GA.