With mortgage rates averaging above 7 percent for the preceding four weeks, builder sentiment has posted its first decline since November 2023.
Builder confidence in the market for newly built single-family homes was 45 on a scale of 0-to-100 in May, down six points from April, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
“The market has slowed down since mortgage rates increased, and this has pushed many potential buyers back to the sidelines,” said NAHB chairman Carl Harris, a custom home builder from Wichita, Kan.
Harris also pointed to new federal regulations that “will further increase the cost of construction in a market that sorely needs more inventory for first-time and first-generation buyers.”
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”
Scores for each component are then 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 May. The HMI index charting current sales conditions fell six points to 51, the component measuring sales expectations in the next six months fell nine points to 51 and the gauge charting traffic of prospective buyers declined four points to 30.
Looking at the three-month moving averages for regional HMI scores, the Midwest increased three points to 49, the Northeast fell two points to 61, the South dropped two points to 49 and the West posted a four-point decline to 43.
The May HMI survey also revealed that 25 percent of builders cut home prices to bolster sales in May, ending four months of consecutive declines in this metric. However, the average price reduction in May held steady at 6 percent for the 11th straight month. Meanwhile, the use of sales incentives ticked up to 59 percent in May from a reading of 57 percent in April.
HMI tables can be found at nahb.org/hmi.
