With high inflation and increased interest rates stalling the housing market, the National Association of Home Builders released a report on Monday showing a substantial deterioration in U.S homebuilder confidence in the month of July.
The report showed the NAHB/Wells Fargo Housing Market Index plunged to 55 in July from 67 in June. Economists had expected the index to edge down to 66.
The HMI showed its second biggest single-month drop after a 42-point nosedive in April 2020, tumbling to its lowest level since May 2020.
“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” said NAHB Chairman Jerry Konter.
He added, “In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”
The much steeper than expected drop by the housing market index reflected sharp declines by all three of the component indices.
The index gauging current sales conditions plummeted to 64 in July from 76 in June, the index measuring sales expectations in the next six months dove to 50 from 61 and the index charting traffic of prospective buyers plunged to 37 from 48.
“Affordability is the greatest challenge facing the housing market,” said NAHB Chief Economist Robert Dietz. “Significant segments of the home buying population are priced out of the market. Policymakers must address supply-side issues to help builders produce more affordable housing.”
On Tuesday, the Commerce Department is scheduled to release a separate report on new residential construction in the month of June.
Housing starts are expected to jump by 2.3 percent to an annual rate of 1.585 million, while building permits are expected to tumble by 2.7 percent to an annual rate of 1.650 million.
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