Builder confidence in the market for newly built single-family homes was 45 in May, down six points from April, according to the latest 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 Carl Harris, chairman of NAHB. “We are also concerned about the recent codes rules that require HUD and USDA to insure mortgages for new single-family homes only if they are built to the 2021 International Energy Conservation Code. This will further increase the cost of construction in a market that sorely needs more inventory for first-time and first-generation buyers.”
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.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo 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 in May 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.