The National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) decreased 2 points to 31 in December. This is the twelfth straight month that builder sentiment has declined and marks the lowest confidence reading since mid-2012, with the exception of the onset of the pandemic in the spring of 2020.
“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga. “Our latest survey shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions. But with construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices. Only 35% of builders reduced homes prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year.”
“The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” said NAHB Chief Economist Robert Dietz. “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations.”
The HMI index gauging current sales conditions fell three points to 36 and traffic of prospective buyers held steady at 20. The component charting sales expectations in the next six months increased four points to 35.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell five points to 37, the Midwest dropped four points to 34, the South fell six points to 36 and the West posted a three-point decline to 26.
Read the NAHB release.
