Builder Confidence Down 12th Straight Month
The National Association of Home Builders/Wells Fargo Housing Market Index went 12-for-12 in 2022—but not in a good way.
NAHB said high mortgage rates, elevated construction costs running well above the inflation rate and flagging consumer demand due to deteriorating affordability conditions dragged builder sentiment down every month in 2022. The report said builder confidence in the market for newly built single-family homes posted its 12th straight monthly decline in December, dropping two points to 31. This is the lowest confidence reading since mid-2012, with the exception of the onset of the pandemic in the spring of 2020.
The HMI index gauging current sales conditions fell three points to 36; traffic of prospective buyers held steady at 20. The component charting sales expectations in the next six months increased four points to 35.
Regionally, the Northeast fell five points to 37, the Midwest dropped four points to 34, the South fell six points to 36 and the West posted a three-point decline to 26.
“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 are possibly nearing the bottom of the cycle for builder sentiment,” said NAHB Chief Economist Robert Dietz. “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations.”
Dietz noted in the current economic climate, builders still need to plan a year or more out when thinking about land and construction timelines. “NAHB is expecting weaker housing conditions to persist in 2023, and we forecast a recovery coming in 2024, given the existing nationwide housing deficit of 1.5 million units and future, lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” he said.
A current NAHB survey shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions. But NAHB noted with construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices. Only 35% of builders reduced homes prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year.”
