The National Association of Home Builders (NAHB) issued their home builder confidence report for August, which dipped 6 percentage points to 49. This represents the builder sentiment for newly built single-family homes. This level represents the first time the index has broken the 50 mark since May 2020, at the height of the pandemic. It also represents the eighth consecutive month of decreasing optimism.
The index is a combination of current market conditions, the sale of new homes and projected conditions for the next 6 months. Anything that produces an index above the 50 mark reflects a positive or favorable view.
Current monetary policy, higher mortgage rates, the shortage of buildable plots and other factors are having their effect upon home builders. In addition, home builders are very wary of making the same mistake they had back in 2006 to 2008 when the market completely collapsed, and many builders took on more debt than they could afford.
Housing affordability is the key aspect to the sustainability of this market. But with the median price of homes continuing to rise, there is less bandwidth for new buyers to come in and purchase newly constructed homes. The survey by the NAHB indicates that 69% of the builders believe that higher interest rates are the primary reason for the decrease in housing demand.
Another factor is that builders are being forced in some cases to reduce prices in order to move product; the index reports 19% of builders have reported reducing prices on new construction.
An interesting metric is that the three-month moving average for the HMI scores reflect that in the Midwest it was the lowest, coming in at 49, and then 63, 51 and 56 for the South, West and Northeast, respectively.
The NAHB is projecting that single-family home construction starts will post a decline in 2022, which represents the first decrease since 2011.
If you have any questions about this information or title insurance, please contact Ralph Aponte: 732.914.1400.
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