Confidence dropped to its lowest level among homebuilders seen since June 2012, according to the latest National Home Builders Association/Wells Fargo Housing Market Index on Wednesday.
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Builder confidence declined for the 11th-consecutive month as homebuilders continue to see little to hope for in the current housing market.
The National Home Builders Association/Wells Fargo Housing Market Index dropped five points in November, to 33, down from 38 in October, according to the NAHB. The latest results mark the lowest level since June 2012 with the exception of the onset of the pandemic in Spring 2020.
Builders are feeling the squeeze both from high construction costs and low buyer demand due to high mortgage rates, the NAHB said.
“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” NAHB Chairman Jerry Konter, a Savannah, Georgia-based developer said in a statement. “With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production.”
59 percent of builders reported offering incentives to win over buyers, a dramatic increase from just September. For example, 25 percent of builders said they were paying points for buyers in November, up from just 13 percent in September. The same time frame saw mortgage rate buy downs rise from 19 percent to 27 percent, and the amount of builders reporting cutting their prices rise from 19 percent to 27 percent.
While sky-high mortgage rates have caused home prices to slow their roll, building costs are yet to follow, the NAHB said.
“Even as home prices moderate, building costs, labor and materials — particularly for concrete — have yet to follow,” NAHB Chief Economist Robert Dietz said in a statement. “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.”
The index is derived from a survey of home builders that asks them to rate current sales, sales expectations, and buyer traffic either “good,” “fair” or “poor.”
November saw each category chart a decrease, with current sales falling six points to 39, sales expectations falling four points to 31 and buyer traffic decreasing by five points to 20.