George Frey | Bloomberg | Getty Images Builder sentiment in the single-family home market dipped into negative territory in August as builders and buyers grappled with higher costs. The National Association of Home Builders/Wells Fargo Housing Market Index fell 6 points to 49 this month, its eighth straight monthly decline. Anything over 50 is considered positive. The index is not in negative territory after a very brief dip at the beginning of the Covid pandemic. Before that, it had not been negative since June 2014. “Tighter monetary policy from the Federal Reserve and persistently increased construction costs have caused a housing downturn,” said NAHB Chief Economist Robert Dietz.
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Of the three components of the index, current sales conditions fell 7 points to 57, sales expectations over the next six months fell 2 points to 47 and buyer movement fell 5 points to 32. Despite higher costs for land, labor and materials, about 1 in 5 manufacturers in August reported cutting prices last month in an effort to boost sales or limit cancellations. The average drop reported was 5%. The biggest hurdle for buyers right now is affordability. Home prices have been rising since the start of the pandemic, and the average 30-year fixed mortgage rate, which had hit historic lows in the early part of the pandemic, is nearly double what it was at the start of this year. House price growth has moderated somewhat in recent weeks, while mortgage rates have come down from highs. “The overall volume of single-family starts will decline in 2022, the first such decline since 2011. However, as evidence mounts that the rate of inflation is nearing its peak, long-term interest rates have stabilized, which should provide some stability for the demand side of the market in the coming months,” Dietz said. Regionally, in a three-month moving average, builder confidence in the Northeast fell 9 points to 56 and fell 3 points in the Midwest to 49. In the South it fell 7 points to 63 and in the West, where home prices are higher, it fell 11 units at 51.
