While most homebuilders are optimistic about home sales, for the fifth month in a row their confidence has fallen and the forecast from the National Association of Home Builders (NAHB) and its partner, Wells Fargo, is that Single-family home sales will continue to decline.
“Housing is leading the business cycle and housing is slowing down,” said NAHB President Jerry Konter. “The White House is finally getting the message and yesterday released an action plan to deal with rising housing costs that emphasizes a very important point long championed by NAHB – the need to build more mores to ease the country’s affordability crisis.”
Builder confidence in the market for newly built single-family homes fell eight points this month, to 69, according to the NAHB/Wells Fargo Housing Market Index, but, as NAHB economist Rose explained Quint, the NAHB index ranges between 1 and 100, which means that any number above 50 indicates that most builders are optimistic about the market.
Between April and May, the index for homebuilders in the northeast and south remained the same at 76, meaning homebuilders in those parts of the country remain the most optimistic. But he dropped 11 points in the West and Midwest, 84-73 and 62-51, respectively.
“It’s a sentiment cue,” she said. “Regionally, the Midwest, at 51, is at an inflection point, meaning builder sentiment in that part of the country is at its weakest.”
She said the NAHB prefers the regional three-month moving average, calling it the most reliable in terms of what homebuilders think of the housing market. Based on those numbers, the homebuilder index for the Northeast held steady at 72, but fell the most in the Midwest and West, from 69 to 63 and 89 to 83, respectively. . It took a slight two-point drop in the South, from 82 to 80.
The NAHB/Wells Fargo Overall Housing Market Index has fallen 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 are at a 12-year high and, based on current affordability conditions, less 50% of new and existing home sales are affordable for a typical family.
“Entry-level buyers and first-time buyers are particularly hard hit by its rapid rise in mortgage rates,” he added.
The NAHB/Wells Fargo Housing Market Index also gauges homebuilders’ perceptions of current single-family home sales and sales expectations. The survey also asks builders to gauge traffic from potential buyers.
The future homebuyer traffic index fell nine points from April to May, from 61 to 52.
“What homebuilders are telling us is that traffic to view homes is slow and mortgage rates pose a serious threat to affordability,” Quint said.