A worker drills plywood into a single-family home under construction in Lehi, Utah, on Friday, January 7, 2022.
George Frey | Bloomberg | Getty Images
Construction sentiment in the single-family market fell into negative territory in August as builders and buyers grapple with higher costs.
The National Association of Home Builders/Wells Fargo Housing Market Index fell 6 points to 49 this month, its eighth consecutive monthly decline. Anything over 50 is considered positive. The index has not been in negative territory since a very brief dip at the start of the Covid pandemic. Before that, it hadn’t been negative since June 2014.
“Tightening Federal Reserve monetary policy and persistently high construction costs have led to a recession in the housing market,” said NAHB chief economist Robert Dietz.
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Of the three components of the index, current sales terms fell 7 points to 57, sales expectations over the next six months fell 2 points to 47, and buyer traffic fell 5 points to 32.
Despite higher costs for land, labor and materials, about 1 in 5 builders reported in August that they had cut prices in the past month in an effort to increase sales or limit cancellations. The reported average decrease was 5%.
The biggest hurdle for buyers right now is affordability. House prices have risen since the start of the pandemic, and the average interest rate on the 30-year fixed mortgage, which had hit historic lows in the early part of the pandemic, is almost twice as high as it was at the start of this year. House price growth has cooled somewhat in recent weeks, while mortgage rates have fallen from a high.
“The total volume of single-family homes is set to decline in 2022, the first such decline since 2011. But as signs mount that inflation is nearing its peak, long-term interest rates have stabilized, providing some stability for the demand side of the market. in the coming months,” Dietz said.
Regionally, builders’ confidence fell 9 points to 56 in the Northeast on a three-month moving average, and 3 points to 49 in the Midwest. In the South, it fell 7 points to 63, and in the West, where home prices highest, it fell 11 points to 51.