Homebuilder confidence continued to drop in November, hitting its lowest level since June 2012, with the exception of the onset of the COVID-19 pandemic in the spring of 2020, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report, released Wednesday.
In November, builder sentiment in the market for newly built single-family homes fell five points from October, ending at 33 points — less than half the level it was six months ago. This latest drop marks the 11th consecutive month of declines.
The NAHB/HMI report is based on a monthly survey of NAHB members, in which respondents are asked to rate both current market conditions for the sale of new homes and expected conditions for the next six months, as well as traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index, with any number greater than 50 indicating that more homebuilders view conditions as favorable than not.
“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” Jerry Konter, the NAHB chairman, said in a statement.
Experts also attribute the drop in confidence to high building material costs and declining affordability conditions.
To bring in more buyers, 59% of builders surveyed reported using incentives. Top incentive methods include paying points for buyers, which 25% of builders reported using; mortgage rate buydowns, which 27% of builders reported using; and price cuts, which 37% of builders used. According to the NAHB, the average price reduction was 6%, roughly half the size of the 10% to 12% price cuts seen in the Great Recession of 2008.
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To remedy this “housing sector recession,” the NAHB is calling on policymakers to take action.
“Even as home prices moderate, building costs, labor and materials — particularly for concrete — have yet to follow,” Robert Dietz, the NAHB’s chief economist, said in a statement. “To ease the worsening housing affordability crisis, policymakers must seek solutions that create more affordable and attainable housing. With inflation showing signs of moderating, this includes a reduction in the pace of the Federal Reserve’s rate hikes and reducing regulatory costs associated with land development and home construction.”
Three other indices monitored by the NAHB also posted declines in November. The gauge measuring current sales conditions fell to 39, down six points month over month, while the component analyzing sales expectations for the next six months fell four points to a reading of 31. The index charting traffic of prospective buyers posted a five-point drop to 20 points.
Regionally, the three-month moving averages for HMI scores fell in all four regions, to 38 in the Midwest, 42 in the South, 29 in the West and 41 in the Northeast.
Another survey, the BTIG/HomeSphere State of the Industry Report, also noted sizable decreases in homebuilder outlook. According to the survey, 71% of builders saw a yearly decrease in sales last month, and 70% of builders reported year-over-year declines in traffic in October. Both of these metrics are survey-record highs.
The BTIG/HomeSphere study is an electronic survey of approximately 50-100 small- to mid-sized homebuilders that sell, on average, 50-100 homes per year throughout the nation. In October the survey had 121 respondents.
“Conditions continued to deteriorate in October given higher mortgage rates, fear of falling real estate values and weaker economic confidence among consumers, a lag in some private builder reactions to negative conditions and to some extent seasonality,” Carl Reichardt, a BTIG analyst, said in a statement.
