Home construction psychology plunges historically in July

A contractor works on a new home under construction in Tucson, Arizona, U.S.A., on Tuesday, February 22, 2022. U.S. new home sales fell in January after a flurry of events. purchases in late 2021, suggesting that soaring mortgage rates may begin to limit demand.

Rebecca Noble | Bloomberg | beautiful pictures

Builders’ confidence in the nation’s single-family housing market in July fell to its lowest level since the start of the pandemic.

The National Association of Builders / Wells Fargo Housing Market Index, a survey designed to gauge market conditions, showed builder sentiment down 12 points to 55. That marks the biggest one-month drop in the survey’s 37-year history, excluding April. In 2020, when the reading score plummeted 42 points to 30 points after the Covid-19 pandemic began.

Any rating above 50 for the index is still considered positive, but sentiment is now down 24 points since March, when mortgage rates started to move higher. The average interest rate on a 30-year fixed mortgage has nearly doubled since January and is now hovering just under 6%.

Sentiment stood at 80 last July after hitting a record high of 90 in November 2020, as the pandemic caused a wave of homebuying among people looking for more space in small urban areas. than. Now, concern about inflation and recession is one of the factors affecting the sentiment of the builders.

In the index’s three components, builder sentiment on current sales conditions fell 12 points to 64, while sales expectations over the next six months fell 11 points to 50, and buyer traffic sentiment down 11 points to 37. That last component is currently in the negative. territory.

“Affordability is the biggest challenge facing the housing market,” said Robert Dietz, chief economist at NAHB. “Significant segments of the homebuying population are priced out of the market.”

Several major publicly traded homebuilders mentioned affordability in their latest earnings releases, saying they will work with buyers to accommodate tight budgets. But the price of a new home built in May was $449,000, up 15% from a year ago. That could change in the coming months.

According to Jerry Konter, president of NAHB and a home builder in Savannah, Georgia, in another sign of a weakening market, 13% of homebuilders in the HMI survey reported a drop in home prices over the past month to increase sales or limit cancellations.

“Production bottlenecks, rising housing costs and high inflation are causing many builders to pause construction because the cost of land, construction and financing exceeds the market value of their homes,” said Mr. house.

In the Northeast, sentiment builder above the three-month moving average fell 6 points to 65. In the Midwest, sentiment fell 4 points to 52 and sentiment in the South dropped 8 points to 70. The West has the biggest decrease, down 12 points. destination 62.

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