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It’s a bad sign for the housing market. And a troubled housing market is a bad sign for the economy.
According to the National Association of Home Builders/Wells Fargo Housing Market Index, released June 15, builder confidence in the market for newly-built single-family homes posted its sixth straight monthly decline, falling to a 67 rating. That’s the lowest HMI number since June 2020.
NAHB Housing Market Index – June 2022
Rising inflation and higher mortgage rates are slowing traffic of prospective home buyers and putting a damper on builder sentiment.
“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” said NAHB Chairman Jerry Konter, a builder and developer from Savannah, Ga. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates.”
“Government officials need to enact policies that will support the supply-side of the housing market as costs continue to climb,” Konter added.
NAHB and US Dept of Housing and Urban Development Officials Met
At a meeting July 14 hosted by NAHB and the U.S. Department of Housing and Urban Development (HUD), Konter said that housing affordability is the top priority of NAHB members, and should also be the top priority of lawmakers and government officials.
HUD Secretary Marcia Fudge agreed.
“We need to rethink housing,” said Secretary Fudge. “If we do not address the housing crisis right now, we all will have failed.”
The meeting, held at the National Building Museum in Washington, served as a kickoff event for the Innovative Housing Showcase a three-day event on the National Mall featuring new building technologies and housing solutions to make housing more innovative, resilient and affordable for American families.
NAHB Chief Economist Rob Dietz said housing issues need to be immediately addressed.
“We have a persistent housing deficit in the country and the costs to build are going up,” Dietz said. “The time to address these issues is now, and we need to address them with market solutions and government policy changes.”
Details from the NAHB Housing Market Index Report
Housing market challenges and coming from two sides, from demand and from supply-side challenges, according to the report.
“Residential construction material costs are up 19% year-over-year with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown,” Dietz said. “On the demand-side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure of the HMI.”
Prospective Buyer Index at Lowest Level Since June 2020
All three HMI indices posted declines in June. The component charting traffic of prospective buyers fell five points to 48, marking the first time this gauge has fallen below the breakeven level of 50 since June 2020. The HMI index gauging current sales conditions fell one point to 77 and the gauge measuring sales expectations in the next six months fell two points to 61.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 71, the Midwest dropped six points to 56, the South fell two points to 78 and the West posted a nine-point decline to 74.
How the NAHB HMI Survey Is Done
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.