While most home builders are optimistic about home sales, for the fifth straight month their confidence dropped and the prediction from the National Association of Home Builders (NAHB) and their partner, Wells Fargo, is that single-family home sales will continue to decline.
“Housing leads the business cycle and housing is slowing,” said NAHB Chairman Jerry Konter. “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 mores to ease the nation’s affordability crisis.”
Builder confidence in the market for newly built single-family homes dropped eight points this month, to 69, according to the NAHB/Wells Fargo Housing Market Index, But, as NAHB Economist Rose Quint explained, the NAHB Index is between 1–100, meaning that any number over 50 shows that most builders are optimistic about the market.
Between April and May, the Index for home builders in the Northeast and the South came in the same at 76, meaning home builders in those sections of the country remain the most optimistic. But it dropped 11 points in the West and the Midwest, from 84 to 73 and from 62 to 51, respectively.
“This is a sentiment index,” she said. “At the regional level, the Midwest, at 51, is at an inflection point, meaning builder sentiment in that part of the country is the weakest.”
She said the NAHB prefers the regional three-month moving average, calling it more reliable in terms of what home builders are feeling about the housing market. Based on those numbers, the homebuilder index for the Northeast remained stable at 72, but it dropped the most in the Midwest and the West, from 69 to 63 and from 89 to 83, respectively. It took a minor, two-point drop in the South, from 82 to 80.
The overall home NAHB/Wells Fargo Housing Market Index has dropped 14 points since January, when it was 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 homebuyers are especially bearing the brunt of his rapid rise in mortgage rates,” he added.
The NAHB/Wells Fargo Housing Market Index also gauges home builder perceptions of current single family home sales and sales expectations. The survey also asks builders to rate traffic of prospective buyers.
The Index for traffic of prospective homebuyers dropped nine points from April to May, from 61 to 52.
“What homebuilders are telling us is that traffic to see homes is slowed down and that mortgage rates are a serious threat to affordability,” Quint said.