Home Builder Confidence Suffers Near-Record Plunge

On Monday the National Association of Home Builders (NAHB) Housing Market Index (HMI) released their latest data and that showed a 12 point drop in home builder confidence. In June the index reported home builder confidence at 67 but that has now fallen to 55. This is the second largest drop ever recorded, second only to June 2020 when most of the economy was shut down due to the pandemic. The biggest drops were the South and West regions which fell 15 and 16 points respectively.

In the survey, home builders are asked to rate the current sales of single-family homes and sales expectations for the next six months, while also assessing the traffic of prospective buyers. This is a survey that is done monthly with hundreds of single family home builders.

Any number above 50 indicates that a majority of home builders feel confident about selling their homes in the housing market, so it is still positive, however, this is the sixth straight month of decline and the second largest drop ever recorded, which is concerning. The index showed a 83 in January 2022 so at the current rate I would expect that to drop below 50 and turn negative within the next month or two.

In a statement explaining the battered sentiment, NAHB Chair Jerry Konter said “production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction, as the cost of land, construction and financing exceed a home’s market value in some cases.” Pantheon Macro chief economist Ian Shepherdson warned that confidence has “further to fall” and declared that we are “in a meltdown”.

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