It’s a bad sign for the housing market. And a troubled housing market is a bad sign for the economy.
According to the National Association of Home Builders/Wells Fargo Housing Market Index, released June 15, builders’ confidence in the newly built single-family home market recorded its sixth consecutive monthly decline, to a 67 rating. That is the lowest HMI number since June 2020.
NAHB Housing Market Index – June 2022
Rising inflation and higher mortgage rates are slowing the movement of potential home buyers and dampening construction sentiment.
“Six consecutive monthly declines for the HMI are a clear sign of a slowing housing market in a high-inflation, slow-growth economic environment,” said NAHB Chairman Jerry Konter, a builder and developer from Savannah, Georgia. Particularly affected by the decline in home affordability, builders are taking a more cautious stance as demand declines with higher mortgage rates.”
“Government officials need to establish policies that support the supply side of the housing market as costs continue to rise,” Konter added.
Officials from the NAHB and the United States Department of Housing and Urban Development met
At a July 14 meeting hosted by NAHB and the United States Department of Housing and Urban Development (HUD), Konter said housing affordability is the top priority of NAHB members, and should also be the top priority of lawmakers and government officials.
HUD Secretary Marcia Fudge agreed.
“We need to rethink housing,” said Minister Fudge. “If we don’t tackle the housing crisis now, we’ve all failed.”
The meeting, held at the National Building Museum in Washington, kicked off the Innovative Housing Showcase, a three-day event on the National Mall that showcases new building technologies and housing solutions to make housing more innovative, resilient and affordable for American families.
NAHB chief economist Rob Dietz said housing issues should be addressed immediately.
“We have an ongoing housing shortage in the country and construction costs are rising,” Dietz said. “The time to address these issues is now, and we need to address them with market solutions and changes in public policy.”
Details from the NAHB housing market index report
Challenges in the housing market come from two sides, from demand and from the challenges on the supply side, the report said.
“The cost of residential building materials is up 19% year-over-year, with costs increasing for a variety of building inputs, except for wood, which has fallen recently due to a housing slowdown,” Dietz said. “On the demand side of the market, the rise in mortgage rates for the first half of 2022 has priced out a significant number of potential home buyers, as evidenced by the decline in the HMI’s traffic measure.”
Index of prospective buyers at lowest level since June 2020
All three HMI indices declined in June. The component that maps the traffic of potential buyers fell five points to 48, marking the first time this meter has fallen below the break-even level of 50 since June 2020. The HMI index measuring current sales conditions fell by one point to 77 and the meter measuring sales expectations over the next six months fell two points to 61.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 71, the Midwest fell six points to 56, the South fell two points to 78, and the West recorded a nine-point drop to 74.
How the NAHB HMI Survey is Conducted
Derived from a monthly survey conducted by NAHB for more than 35 years, the NAHB/Wells Fargo HMI polls builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or ” arm.”
The survey also asks builders to rate potential buyer traffic as “high to very high,” “medium,” or “low to very low.” The scores for each component are then used to calculate a seasonally adjusted index, with any number above 50 indicating that more builders view the conditions as good than bad.
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