As Buyers Became More Cautious, Homebuilder Morale Declined in July

The National Association of Home Builders/Wells Fargo Housing Market Index fell 4 points to 64 in July, its most significant drop since October 2014.

The index, which gauges builder confidence in the market for newly-built single-family homes, is now at its lowest level since December 2014.

Builders are reporting that buyer traffic has slowed in recent months, which is impacting sales and leading to some concerns about the short-term outlook for housing,” David Crowe, chief economist for the NAHB, said in a statement.

The drop in sentiment comes as more buyers pull back from the market.

Home sales have been cooling off recently, as affordability constraints and rising mortgage rates have put a damper on demand.

According to the National Association of Realtors, sales of existing homes fell 0.7 percent in June to a seasonally adjusted annual rate of 5.38 million.

And new home sales plunged 7 percent in May, to a seasonally adjusted annual rate of 662,000, according to the Commerce Department.

“The housing market is going through a bit of a cooling-off period right now,” Crowe said. “We’re expecting that to continue for the next few months.”

The drop in builder confidence comes as starts on new homes have also been falling.

According to the Commerce Department, housing starts fell 4.8 percent in June, to a seasonally adjusted annual rate of 1.17 million.

And building permits, which are a good gauge of future construction activity, fell 5 percent in June to a seasonally adjusted annual rate of 1.24 million.

“The decline in starts and permits in June is consistent with our builder surveys, which show that builders are starting to pull back on construction activity in response to declining buyer demand,” Crowe said.

The NAHB is forecasting that starts will fall to 1.15 million this year and then rebound to 1.23 million in 2019.

“The overall trend in the housing market remains positive, but near-term headwinds are holding back a more robust pace of growth,” Crowe said.

Those headwinds include a rise in mortgage rates, which have been climbing in recent months.

The average rate on a 30-year fixed mortgage was 4.54 percent last week, up from 3.99 percent at the start of the year, according to Freddie Mac.

Rising rates make it more expensive for potential buyers to purchase a home.

“As interest rates continue to rise, we expect to see further softening in the housing market,” Crowe said.

The NAHB is also forecasting that home prices will continue to outpace wage growth, making it difficult for potential buyers to afford a home.

Home prices are still rising faster than wages, making it difficult for many people to enter the market,” Crowe said.

The NAHB forecasts that home prices will rise 4.5 percent this year, then slow to a 3.5 percent gain in 2019.

“We expect the housing market to gradually cool off over the next few months as headwinds like rising mortgage rates and increasing home prices outweigh the tailwinds of a strong economy and robust job growth,” Crowe said. “We expect the market to regain momentum in 2019 as these headwinds ease.”

If you’re thinking of buying a home, now might be a good time to start shopping.

“With builders starting to pull back on construction and home sales expected to soften, there may be some good deals out there for buyers,” Crowe said. “Now could be a good time to buy before the market picks back up.”

But if you’re considering selling, you might want to wait until the market strengthens.

“If you’re thinking of selling your home, you might want to wait until the market recovers a bit before putting your home on the market,” Crowe said. “Right now, it’s a bit of a buyer’s market.”

It’s also an excellent time to refinance your mortgage.

“With interest rates rising, now might be a good time to lock in a lower rate by refinancing your mortgage,” Crowe said. “But make sure you compare rates and fees from multiple lenders before you decide to refinance.”

The housing market is going through a cooling-off period right now, according to the National Association of Home Builders (NAHB).

The NAHB’s Housing Market Index (HMI) fell to 68 in July, its lowest level since January.

“The housing market is going through a bit of a cooling-off period right now,” said Randy Noel, chairman of the NAHB. “Higher interest rates and home prices are starting to impact demand.”

The HMI is based on a builders survey asking them to rate the current sales of newly built single-family homes and their expectations for future sales over the next six months. Readings above 50 indicate that more builders view conditions as good than poor.

The index fell in all four regions of the country in July, with the biggest declines in the Northeast and the South.

Builders are reporting concerns about increasing construction costs and lot shortages making it difficult to build homes affordable for buyers,” Noel said.

Builder Confidence Takes a Dive

The National Association of Home Builders’ monthly poll revealed a 12-point dip in builder sentiment at 55.

Builders are seeing a slowdown in demand as buyers grow more cautious in the face of declining affordability and an uncertain economic outlook,” said NAHB chairman Randy Noel. “In addition, builders report that lot and labor shortages continue to hinder production.”

The sentiment index has been on a roller coaster ride this year, falling to a five-month low in May before rebounding in June and July. It has now fallen for three straight months.

The index is compiled from a survey of builders who rate the present sales of single-family homes and sales expectations for the next six months as “good,” “fair,” or “poor.” Anything above 50 is considered positive.

U.S. Consumer Confidence Plummets to All-time Low

Except for April 2020, that represents the biggest monthly decline in the survey’s 37-year history.

The most significant declines were in the South and West regions, where builders reported pessimism about current sales and traffic from prospective buyers. The Northeast and Midwest saw more modest declines.

Builders are concerned about near-term market conditions given the affordability challenges weighing on potential buyers and the ongoing concerns about the pandemic,” said NAHB chief economist Robert Dietz. “However, they remain optimistic that the housing market will recover in 2021 as the economy continues to reopen.”

Record Low Sentiment in Q1

Buyer traffic firmly entered negative territory as sentiment toward the existing state of sales circumstances decreased the most.

Builders’ expectations for the next six months also declined but remained in positive territory.

The index measuring current sales conditions fell 10 points to 60, while the gauge of traffic from prospective buyers slipped four points to 42. The measure of sales expectations for the next six months dipped two points to 62.

The monthly drop in builder sentiment comes as the housing market faces several challenges, including a sharp rise in home prices and a lack of inventory.

Home prices have been rising at more than twice the rate of wage growth, making it difficult for potential buyers to save for a down payment. At the same time, the number of homes available for sale has fallen to record lows, leading to bidding wars and rising prices.

The combination of high prices and low inventory has caused sales of existing homes to slow down in recent months. Sales of new homes have also been softening, though they remain near record highs.

“With affordability deteriorating and the inventory of unsold homes still at historically low levels, we expect the pace of both new and existing home sales to moderate in the months ahead,” Dietz said.

The NAHB’s survey is the latest sign that the housing market is starting to cool off after a blistering run in the spring of 2020.

Other recent data has also shown a slowdown in home sales and prices.

The home building industry is still feeling the effects of the housing crisis. Although things are starting to look up, builder confidence dived in July. This could be due to buyers becoming more cautious and refinancing their mortgages at lower rates. Consumer confidence is also low, with sentiment dropping to an all-time low in Q1. However, if you’re looking for a good time to buy or refinance your home, now might be the time. The market is slowly recovering, so don’t wait too long!

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