Builder Sentiment Weak Amid Affordability Concerns
Homebuilder sentiment remains subdued as rising material costs, elevated mortgage rates and ongoing affordability challenges continue to strain the housing market.
Builder confidence in the market for newly built single-family homes fell two points in June to 35, the National Association of Home Builders/Wells Fargo Housing Market Index reported.
This represents the fourteenth straight month that sentiment has remained below 40, a streak not seen since 2011-2012 during the foreclosure crisis.
The latest HMI survey also revealed that 35% of builders cut prices in June, up from 32% in May. The average price reduction was 6% in June, the same rate as the previous month. The use of sales incentives was 62% in June, up slightly from 61% in May, and marking the 15th consecutive month this share has reached 60% or higher.
Bankrate Financial Analyst Stephen Kates noted existing home sales showed what he called “signs of life” in the most recent report, even as mortgage rates climbed above 6.6%. “Easing geopolitical tensions may allow mortgage rates to start falling again, further unlocking sidelined buyers who have been waiting to enter the new and existing home markets,” he added.
“The housing market’s strength depends heavily on location right now. Metropolitan areas that continued building throughout the 2020s have rising inventories and flat or falling home prices. Strong post-pandemic buyer demand has waned under high mortgage rates and economic uncertainty,” Kates said.
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.
The HMI index gauging current sales conditions fell two points to 38 in June, the index measuring future sales held steady at 45 and the index charting traffic of prospective buyers remained unchanged at 25.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose two points to 44, the Midwest held constant at 43, the South fell two points to 33 and the West dropped one point to 27.
