Builder Confidence Plunges on Rising Interest Rates, Growing Affordability Woes
In the first of several major housing reports this week, the National Association of Home Builders said builder confidence took a steep drop in May as growing affordability challenges amid rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation took a toll on buyer demand.
The NAHB/Wells Fargo Housing Market Index reported builder confidence in the market for newly built single-family homes fell by eight points to 69 in May, marking the fifth straight monthly decline to its lowest reading since June 2020.
All three HMI indices posted major losses in May. The HMI index gauging current sales conditions fell eight points to 78, the gauge measuring sales expectations in the next six months dropped 10 points to 63 and the component charting traffic of prospective buyers posted a nine-point decline to 52.
Regional HMI scores saw the Northeast hold steady at 72, while the Midwest dropped seven points to 62, the South fell two points to 80 and the West posted a six-point decline to 83.
“The housing market is facing growing challenges,” said NAHB Chief Economist Robert Dietz. “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.”
The parade of housing reports continues this week. This morning (8:30 a.m. ET), HUD and the Census Bureau release its monthly New Residential Construction report for April data.
On Thursday, the Mortgage Bankers Association releases its monthly Builder Applications Survey (April data, 9:00 a.m. ET), with commentary and analysis from MBA Associate Vice President of Economic and Industry Forecasting Joel Kan; and the National Association of Realtors releases its Existing Home Sales report for April data (10:00 a.m. ET)
