Builder Confidence Plunges on Rising Interest Rates, Growing Affordability Woes

In a sign that the housing market is now slowing, builder confidence took a steep drop in May as growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation are taking a toll on buyer demand. 

Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the National Association of Home Builders/Wells Fargo Housing Market Index. This is the fifth straight month that builder sentiment has declined and the lowest reading since June 2020. 

“Housing leads the business cycle and housing is slowing,” says Jerry Konter, NAHB chairman. “The White House is finally getting the message and yesterday released an action plan to address rising housing costs that emphasizes a very important element long-advocated by NAHB – the need to build more homes to ease the nation’s housing affordability crisis.” 

“The housing market is facing growing challenges,” says Robert Dietz, NAHB chief economist. “Building material costs are up 19 percent from a year ago, in less than three months mortgage rates have surged to a 12-year high and based on current affordability conditions, less than 50 percent of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.” 

All three HMI indices posted major losses in May. The HMI index gauging current sales conditions fell eight points to 78, the gauge measuring sales expectations in the next six months dropped 10 points to 63 and the component charting traffic of prospective buyers posted a nine-point decline to 52.