Builder Optimism Plummets in May

At 69, NAHB’s confidence index remained in positive territory, but it dropped 8 points due to rising interest rates, a lack of workers and supply-side issues.

WASHINGTON – Builder confidence took a steep drop in May as growing affordability challenges – rapidly rising interest rates, double-digit price increases for material and ongoing home price appreciation – took a toll on new-home buyer demand.

Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). It’s the fifth straight month for a decline and, in May, the lowest reading since June 2020.

“The housing market is facing growing challenges,” says 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 this rapid rise in mortgage rates.”

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.

Looking at the three-month moving averages for regional HMI scores, the Northeast held 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 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. Any number over 50 indicates that builders generally view conditions as good rather than poor.

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