Homebuilder confidence slides for third straight month

Supply issues, construction costs driving diminished optimism: NAHB

National /
Mar.March 17, 2022 02:00 PM

(iStock)

The National Association of Home Builders/Wells Fargo Housing Market Index — which tracks homebuilder confidence in current and future single-family home sales and traffic of potential buyers — slid for the third month in a row.

The index dropped two points from February’s revised total, bringing builder confidence to 79 points in the first time the index dropped below 80 since September.

Some current factors appear to be in builders’ favor. Demand for homes has remained high amid historic lows in inventory, creating opportunities for people to quickly snap up newly built homes. For-sale inventory dropped 31.6 percent in the fourth quarter, hitting a historic low of 753,102 units nationwide in December. Inventory dropped 26.6 percent during the year, according to Zillow.

But persistent supply constraints are among several factors cited in the declining builder confidence. Other factors include rising construction costs and federal policy.

“Builders are reporting growing concerns that increasing construction costs (up 20 percent over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market,” said National Association of Home Builders chief economist Robert Dietz.

The report came the same day the Federal Reserve raised interest rates for the first time since 2018, hiking the benchmark by a quarter of a percentage point. The rate increase will likely make borrowing more expensive, in turn making people less likely to spend.

The NAHB has been conducting the survey for 35 years, gauging confidence in the market and expectations for the next six months. The index for current sales dropped three points from last month to 86, but the index for six-month sale expectations dropped much more precipitously, down 10 points to 70.

Confidence appears to be at its lowest in the Northeast, where the three-month average is down seven points to 69. On the other side of the country, builder confidence in the West is up one point to 90.

While confidence is lagging, the report noted anything above 50 points still indicates builders’ collective belief in good conditions.





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