Home Builder Confidence Sinks As Sales Drop 17.6% From Last Year

Two new data reports released Monday morning are pointing to rising problems impacting the U.S. housing market.

Construction Concern: The latest Housing Market Index (HMI) published by National Association of Home Builders (NAHB) and Wells Fargo WFC recorded its seventh straight monthly decline in July with a 12-point drop to 55. This is the lowest HMI reading since May 2020 and the second largest single-month drop: only the 42-point drop in April 2020 was more severe.

“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Georgia. “In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”

NAHB Chief Economist Robert Dietz said the greatest challenge facing the housing market is affordability. 

“Significant segments of the home buying population are priced out of the market. Policymakers must address supply side issues to help builders produce more affordable housing.”

Nonetheless, builders have not completely lost faith in their industry — in the HMI, any number over 50 indicates that more builders view conditions as good than poor.

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A Shifting Market: Separately, the new housing data report published by the RE/MAX, LLC subsidiary of RE/MAX Holdings RMAX found more home sales in June versus any month thus far this year, with a 4.7% increase from May. Last month was also 17.6% below the sales level of June 2021.

And while the median sales price of $428,000 was 11% higher year-over-year, it was also a scant 0.6% above May's level. Also rising was the housing stock selection, with June’s inventory rate up 34.1% from May and up 27.5% from June 2021.

“The market is moving toward greater balance, especially with inventory gains and the slowing of price appreciation,” said Nick Bailey, RE/MAX LLC’s president and CEO. “The past few years have been one of the most competitive times ever for buyers — and we're finally seeing conditions ease up.”

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Photo: Paul Brennan/Pixabay.