US Home building sentiment in July plummeted to a fresh two-year low as confidence amongst US builders continues to sink.
The National Association of Home Builders/Wells Fargo Housing Market Index, a survey that gauges the pulse of the single-family housing market, declined for the seventh consecutive month in July. The index fell 12 points to 55 which is the lowest level since May 2020. July’s decline was also the second largest monthly decline in the entire 37-year history of the index. The largest monthly decline was in April 2020.
July’s reading was also far below all market estimates which predicted a slight decline to 65.
NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Georgia, said in a statement:
“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,”
“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.”
US Home Building Sentiment in Deep Negative Territory
The measure of single-family sales expectations over the next six months also declined from 61 to 50. Meanwhile, the prospective buyer traffic index plunged 11 points to 37, well below the key 50 mark and deep in negative territory. Readings above 50 indicate an economy in expansion, whilst readings below 50 indicate an economy in contraction.
US Home Building sentiment has now declined 24 points since March when mortgage rates began increasing. The average rate on the 30-year fixed mortgage has nearly doubled since January and is now just below 6%.
Nancy Vanden Houten, lead U.S. economist at Oxford Economics, wrote in a note:
“We look for housing starts to lose some momentum in the second half of 2022 with starts averaging around 1.5 million in Q4, but the deterioration in builder sentiment lends a downside risk to the forecast”.
