Confidence in Single-Family Housing Contraction Continues in OctoberNovember 21st, 2022 by Editor
The National Association of Home Builders (NAHB) points to continued elevated interest rates, high building material costs and declining affordability conditions pushing buyers to the sidelines as the source of the continued drag on builder sentiment. NAHB recorded the lowest confidence reading since June 2012 with the exception of the onset of the pandemic in the spring of 2020. That’s the organization’s opinion after builder confidence in the market for newly built single-family homes posted its 11th straight monthly decline in November, dropping five points to 33, according to the NAHB/Wells Fargo Housing Market Index (HMI), released last week.
To bring more buyers into the marketplace, the association says that 59% of builders report using incentives, with a big increase in usage from September to November. The NAHB provided an example, noting that in November, 25% of builders say they are paying points for buyers, up from 13% in September. Mortgage rate buy-downs rose from 19% to 27% over the same timeframe, and 37% of builders cut prices in November, up from 26% in September, with an average price of reduction of 6%. For comparison, the numbers remain well below the 10%-12% price cuts seen during the Great Recession in 2008.
“Even as home prices moderate, building costs, labor and materials – particularly for concrete – have yet to follow,” said NAHB chief economist Robert Dietz. “To ease the worsening housing affordability crisis, policymakers must seek solutions that create more affordable and attainable housing. With inflation showing signs of moderating, this includes a reduction in the pace of the Federal Reserve’s rate hikes and reducing regulatory costs associated with land development and home construction.”
All three HMI components posted declines in November. Current sales conditions fell six points to 39, sales expectations in the next six months declined four points to 31 and traffic of prospective buyers fell five points to 20.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 41, the Midwest dropped two points to 38, the South fell seven points to 42 and the West posted a five-point decline to 29. HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at Housing Economics PLUS (formerly housingeconomics.com).
The numbers in the HMI are not dissimilar to what the U.S. Department of Housing and Urban Development and the U.S. Census Bureau reported. Those numbers show that overall housing starts decreased 4.2%, to a seasonally adjusted annual rate of 1.43 million units in October.
The October reading of 1.43 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 6.1% to an 855,000 seasonally adjusted annual rate. Year-to-date, single-family starts are down 7.1%. The multifamily sector, which includes apartment buildings and condos, decreased 1.2% to an annualized 570,000 pace.
“Mirroring ongoing falloffs in builder sentiment, builders are slowing construction as demand retreats due to high mortgage rates, stubbornly elevated construction costs and declines for housing affordability,” said Jerry Konter, NAHB chairman of the board.
On a regional and year-to-date basis, combined single-family and multifamily starts are 2.9% higher in the Northeast, 1.5% lower in the Midwest, 2.6% higher in the South and 5.1% lower in the West.
“This will be the first year since 2011 to post a calendar year decline for single-family starts,” said Dietz. “We are forecasting additional declines for single-family construction in 2023, which means economic slowing will expand from the residential construction market into the rest of the economy.”
Multifamily units under construction climbed again in October to 928,000, the highest tally since December 1973.