Builder confidence takes a hit on costs, rising interest rates
Ongoing constraints on the supply side of lumber and building materials, rising construction costs and expectations of higher interest rates continue to negatively affect builder confidence, although buyer demand remains relatively solid.
Builder confidence in the market for newly built single-family homes fell two points to 79 on a scale of 0 to 100 in March, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the third month in a row that builder sentiment has declined and the first time that the HMI has fallen below 80 points since last September.
“As builders continue to report strong buyer traffic figures, helped by a historically low existing home inventory and a persistent housing deficit, rising development and construction costs have weighed on builder confidence. “said NAHB President Jerry Konter, a Savannah builder and developer.
“Builders are increasingly concerned that rising construction costs (up 20% in the past 12 months) and expected interest rate hikes from tighter monetary policy will drive buyers out market potential,” said NAHB Chief Economist Robert Dietz. “While low existing inventory and favorable demographics support demand, the impact of high inflation and expected higher interest rates urges caution for the second half of 2022.”
Derived from a monthly survey conducted by NAHB for more than 35 years, the NAHB/Wells Fargo HMI rates builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” passable” or “poor.” The survey also asks builders to rate traffic from potential buyers 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, where any number above 50 indicates that more builders consider the conditions favorable.
The HMI index assessing current selling conditions fell three points to 86 and the gauge measuring expectations of selling over the next six months fell 10 points to 70. The component that tracks traffic from potential buyers showed a two-point gain to 67.