Builder confidence declines in July amid affordability challenges

Washington, D.C.—Builder confidence in the market for newly built single-family homes declined in July as affordability challenges and economic uncertainty continued to weigh on the housing market, according to the National Association of Home Builders (NAHB).

The National Association of Home Builders/Wells Fargo Housing Market Index fell two points to 34 in July, down from a revised reading of 36 in June. Builder sentiment has remained below 40 for 15 consecutive months, the longest stretch since 2012.

“Many potential buyers remain on the sidelines as they wait for lower mortgage rates, more certainty on inflation and a clearer economic outlook,” said Bill Owens, chairman of the NAHB and a home builder and remodeler from Worthington, Ohio. “The recently enacted 21st Century ROAD to Housing Act contains important provisions on land-use and zoning, regulatory reform and financing tools that address obstacles facing builders and buyers, but these reforms will take time to implement.”

Robert Dietz, NAHB chief economist added, “With the HMI below 40 for 15 straight months, affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices and persistent skilled labor shortages continue to affect the market. Looking ahead, the newly enacted housing law is a positive step that will help expand housing supply and lower overall housing costs, although more policy change is needed at the state and local level.”

The survey also found that 37% of builders reduced home prices in July, up from 35% in June and 32% in May. The average price reduction remained 6%.

The use of sales incentives increased to 63% in July from 62% in June. It marked the 16th consecutive month that at least 60% of builders reported using incentives.

HMI components decline

All three Housing Market Index components declined in July.

The index measuring current sales conditions fell one point to 37. The gauge tracking expected sales over the next six months dropped two points to 43. The index measuring prospective buyer traffic declined two points to 23.

Looking at three-month moving averages, the Northeast increased one point to 45 and the Midwest rose two points to 45. The South declined one point to 33 while the West fell one point to 26.

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