Homebuilder confidence dropped for the fourth month in a row in April as rapidly rising interest rates combined with continued home-price increases and construction costs to sap sentiment, the National Association of Home Builders reported, citing the latest NAHB/Wells Fargo Housing Market Index (HMI).
April’s index of 77 was down two points from March’s reading, the NAHB said in a press release. March’s reading of 79 marked the first time the HMI had fallen below 80 since September 2021. Any reading above 50 indicates that more builders view conditions as good than poor.
The index’s measure of current sales conditions fell two points to 85, while the six-month sales-expectations measurement rose three points to 73 after a 10-point drop in March. The buyer-traffic component fell six points to 60.
Mortgage rates are up more than 1.9 percentage points since the start of the year and stand at 5%, the highest level in more than 10 years, the NAHB said. The unexpectedly quick increase in rates, coupled with rising home prices and materials costs have brought the market to an “inflection point,” the association said.
Regionally, the three-month moving average of the index fell three points in the Midwest to 69, two points in the South to 82 and one point in the West to 89. It rose one point in the Northeast.
The NAHB/Wells Fargo survey measures builder perceptions of current single-family home sales, as well as sales expectations for the next six months, as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” The results are then used to calculate the seasonally adjusted index.
Housing Starts ‘Dead Flat in the Mud’
Housing starts fall in January 2022
New residential construction was down across the board in January, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development said in a press release.
Single-family housing starts fell 5.6% from December’s revised estimate to 1,116,000, while multifamily starts slid 2.1% to 510,000.
Altogether, the combined construction pace of single-family homes and buildings with five or more units was down 4.1% month over month, at 1,638,000 units. Starts were up 0.8% compared to a year ago.
“Homebuilder confidence edged lower in February for the second month in a row, as builders continue to face supply chain disruptions, price increases and concerns that declining affordability will price out some potential buyers,” First American deputy chief economist Odeta Kushi said. “While builder sentiment fell in February, it remains positive and high from a historical perspective because demand for housing remains strong, and existing supply sits at record lows. This dynamic is supportive of new construction.”
The seasonally adjusted annual rate for privately owned housing units authorized by building permits was at 1,899,000 in January, up 0.7% from December and 0.8% compared to a year earlier.
“The number of single-family homes authorized, but not started, increased 5.6% month over month and 32.5% year over year,” Kushi said. “This indicates that builders are focusing on finishing existing projects, rather than starting new ones, as the lack of material availability and rising costs of building materials contribute to delays.”
Privately owned housing completions hit an annual rate of 1,246,000 in January, down 5.2% from December and 6.2% from a year earlier.
By region, single-family new construction varied across the U.S. On a month-over-month basis, it jumped 17.7% in the West and gained 2.6% in the Northeast, while plunging 37.7% in the Midwest and declining 2% in the South.
“Despite a somewhat slower start to 2022, builders have continued to make progress on their backlog of homes, and consumer demand continues to outpace supply,” RCLCO Real Estate Consulting principal Kelly Mangold said. “There is still reason to believe that 2022 will be another strong year for the housing market, and if conditions remain favorable, the market may support another period of sustained growth.”