Are Home Builders Freaking Out Yet?

home builder

Fact Sheet

At 55, Key records show a 12 point decline in builders bias based on a monthly survey from The National Association of Home Builders.

Considering the 37 year history of this survey and with the exception of the outcome recorded in April 2020, this decline shows the worst dip recorded.

The trajectory of this decline can be traced to the abysmal sales recorded at the time and the traffic buyers which has terribly plunged.

Comparing the records with when the pandemic started in July shows that the grit of this single detached housing market builders hit an unprecedented low point.

In a market poll created to analyse the prevailing market situation; National Association of Home Builders/Wells Fargo Housing Market Index, builders bias dipped to 55; a 12 point decline. The closest similarity to this experience was in April 2020 as a consequence of the rampaging covid-19 pandemic when this sentiment declined from 42 points to 30 points. It was the biggest single decline in the 37 years history of the survey.

Optimism has waned by 24 points since March when mortgage rates began to rise and positive sentiment refers to ratings above 50 on the index. The mortgage average rate which has not been altered for 30 years has doubled since January and is now levitating in the region of 6%.

There was a bit of rush for home buying as buyers sought more space in less crowded communities; a situation prompted by the epidemic in November 2020 and this drove sentiments to an all time high of 90 and subsequently 80 as at July last year. Homebuilders confidence have been hampered due to the fear regarding recession and uncontrolled inflation.

There are three components used to weigh builder’s sentiments in the index. Sentiments about current sales, sales expectations and buyer traffic. While current sales sentiments moved to 64 dropping by 12 points, sales expectations projected for six months dipped to 50 dropping 11 points. The most negatively affected however is the buyer traffic sentiment which dipped down to 37 dropping by 11 points.

Exorbitant prices may be the biggest issue facing the housing market according to Robert Dietz, chief economist for NAHB. Those who would love to buy homes cannot afford what the market is offering.

Homebuilders operating as publicly traded companies have reached a sort of consensus to compromise on pricing so as to cater to the moderate budgets of most customers. Nonetheless, records have shown that there was a 15% increase in the price of newly constructed homes in May as a new homes were as high as $450,000.

A homebuilder in Savannah Georgia and the chairman of the NAHB Jerry Konter expressed concerns about a declining market. The HMI survey his conclusion was drawn from indicated that a substantial 13% of homebuilders have resorted to lowering prices so as to minimize cancellations and boost sales.

According to Jerry Konter, NAHB chairman and a homebuilder in Savannah, Georgia, 13 percent of builders in the HMI survey indicated lowering home pricing in the preceding month to boost sales or reduce cancellations as another indication of a diminishing market.

Since the expenses incurred on land, construction, and finance exceeds the market worth of the home, a situation triggered by production bureaucracy, rising home building prices, and high inflation, Konter concludes many homebuilders are left with no choice but to abandon some of their projects.

Over three months, the bias of builders in the West suffered the biggest dip to 62 dropping 12 points. In the Northeast, sentiments dipped by 6 points down to 65. It dipped by 4 points to 52 for builders in the Midwest and 8 points to 70 for the builders in the South.

As originally reported
https://www.cnbc.com/2022/07/18/homebuilder-sentiment-takes-historic-plunge-in-july.html