Report shows builders continue to struggle to keep housing affordable for home buyers.
Builder confidence in the market for newly built single-family homes declined every month in 2022, falling in December to its lowest level in over a decade, with the exception of the pandemic in 2020.
US builder sentiment posted its 12th consecutive monthly decline in December, sliding two points to 31, according to the National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI).
The NAHB said the deteriorating builder confidence reflects the housing market weakened by high mortgage rates, stubborn inflation, elevated construction costs, and low consumer demand.
“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB chairman Jerry Konter. “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 home 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 measuring current sales conditions dropped three points to 36, and traffic of prospective buyers remained unchanged at 20. Meanwhile, the component gauging sales expectations in the next six months rose four points to 35.
“NAHB is expecting weaker housing conditions to persist in 2023, and we forecast a recovery coming in 2024, given the existing nationwide housing deficit of 1.5 million units and future, lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” Dietz said.