The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released last week, shows the reading for builder confidence in the market for newly-built, single-family homes at 43 in June, down two points from May. That’s the lowest since December 2023.

Derived from a monthly survey, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months. Scores for each component are used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI component indices posted declines in June and all are below the key threshold of 50 for the first time since December 2023.
The NAHB points to mortgage rates that continue to hover in the 7% range, along with elevated construction financing costs, as the cause for continued suppression of builder sentiment.

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” said NAHB chairperson Carl Harris, a custom home builder from Wichita, Kan. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

The June HMI survey also revealed that 29% of builders cut home prices to bolster sales in June, the highest share since January 2024 (31%) and well above the May rate of 25%. However, the average price reduction in June held steady at 6% for the 12th straight month. Meanwhile, the use of sales incentives ticked up to 61% in June from a reading of 59% in May, reaching the highest share since January 2024 (62%).

“We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%,” said NAHB chief economist Robert Dietz. “The best way to bring down shelter inflation and push the overall inflation rate down to the 2% range is to increase the nation’s housing supply. A more favorable interest rate environment for construction and development loans would help to achieve this aim.”

The HMI index charting current sales conditions in June fell three points to 48. The component measuring sales expectations for the next six months fell four points to 47 and the gauge charting traffic of prospective buyers declined two points to 28.

Looking at the three-month moving averages for regional HMI scores, the Northeast held steady at 62, the Midwest dropped three points to 47, the South decreased three points to 46 and the West posted a two-point decline to 41.

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