Housing Market

Builder sentiment posts its first decline since November

NAHB also expressed concern over newly announced federal building codes

With mortgage rates hovering north of 7% for the past few months, builder confidence declined for the first time since November 2023.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) sat at 45 in May, down 6 points from April’s reading of 51, according to data released on Wednesday. 

The HMI is a monthly survey that gauges NAHB members’ perceptions of newly built single-family home sales, expected sales for the next six months and potential homebuyer traffic. An index of 50 is neutral. Anything higher than 50 indicates that builders view conditions as favorable, while readings lower than 50 indicate that builders view conditions as unfavorable.

“The market has slowed down since mortgage rates increased and this has pushed many potential buyers back to the sidelines,” NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas, said in a statement.

“We are also concerned about the recent code rules that require the United States Department of Housing and Urban Development and the United States Department of Agriculture to insure mortgages for new single-family homes only if they are built to the 2021 International Energy Conservation Code. This will further increase the cost of construction in a market that sorely needs more inventory for first-time and first-generation buyers.”

In May, 25% of builders cut prices, up from 22% in April. But the average price reduction in May held steady at 6% for the 11th straight month. Meanwhile, the use of sales incentives rose to 59% in May, up from 57% in April.

 Additionally, the NAHB reported that all three major HMI indices posted declines in May. Homebuilders’ gauge of current sales conditions fell six points to 51, while the gauge measuring the traffic of prospective buyers fell four points to 30. Lastly, the component charting sales expectations over the next six months fell nine points to 51.

The three-month moving averages for the HMI fell in all regions except for the Midwest, which posted a three-point increase to 49. The Northeast fell two points to 61, the South dropped two points to 49 and the West posted a four-point decline to 43.

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