Homebuilder sentiment drops to 2-year low as housing demand slows

A contractor frames a home under construction in Lehi, Utah, U.S., Wednesday, Dec. 16, 2020. Private residential construction in the U.S. rose 2.7% in November.

George Frey | Bloomberg | Getty Images

Sentiment among the nation’s homebuilders fell for the sixth consecutive month to the lowest level since June 2020, when the economy was struggling with shutdowns resulting from the Covid pandemic.

The National Association of Home Builders/Wells Fargo housing market index fell 2 points to 67 in June. Anything over 50 is considered positive. The index reached 90 at the end of 2020, as the pandemic stimulated strong demand for larger housing in the suburbs.

Across all three components of the index, buyer traffic fell 5 points to 48, the first time it fell into negative territory since June 2020. Current selling conditions fell 1 point to 77, and sales expectations over the next six months fell 2 points to 61.

“Six consecutive monthly declines for the HMI are a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” said NAHB President Jerry Konter. “The entry-level market has been particularly hard hit by declining housing affordability and builders are taking a more cautious stance as demand falters with higher mortgage rates.”

The average 30-year fixed mortgage rate has risen sharply since the start of the year. In January, it was around 3.25% and on Tuesday it reached 6.28%, according to Mortgage News Daily. Mortgage demand has fallen to less than half of what it was a year ago.

Builders also continue to face challenges on the supply side.

Residential building material costs were up 19% year-over-year with cost increases for a variety of building inputs, except for lumber, which has seen recent declines due to of a housing downturn,” wrote Robert Dietz, NAHB’s chief economist.

Regionally, on a three-month moving average, sentiment in the Northeast fell 1 point to 71. In the Midwest, it fell 6 points to 56. In the South, it fell 2 points at 78, and in the West he fell 9 points to 74. .

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