The growing confidence in the housing market that builders have reported for seven months came to an abrupt halt in August, as rising mortgage rates and shelter inflation made new single-family homes less affordable and dampened consumer demand.
These factors have created a situation that needs to be addressed by government policies at all levels, according to Robert Dietz, Chief Economist with the National Association of Home Builders (NAHB).
Builder confidence fell six points to 50 from July to August on the NAHB/Wells Fargo Housing Market Index (HMI). The HMI index gauging current sales conditions fell five points to 57, the component charting sales expectations in the next six months declined four points to 55 and the gauge measuring traffic of prospective buyers dropped six points to 34. The HMI stood at 84 in December 2021.
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"Shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%," Dietz noted.
High costs limit opportunities for builders to address affordability. "A dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August," said NAHB Chairman Alicia Huey. At the same time, owners' reluctance to sell their existing homes means the demand for new homes remains strong. According to Dietz, there is a nationwide shortfall of approximately 1.5 million housing units.
To encourage prospective home buyers to take the plunge, many builders have resorted to a series of discounts. "After dropping steadily for four months (from 31% in March to 22% in July), the share of builders cutting prices to bolster sales rose again to 25% in August. The average decline for builders reducing prices remained at 6%. And the share of builders using incentives to bolster sales was 55% in August, higher than in July (52%) but still lower than in December 2022 (62%)," the report stated.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased four points to 56, the Midwest and South were both unchanged at 45 and 58, respectively, and the West edged down a single point to 50, the report noted.
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