Jul 18, 2022 - Economy

Homebuilder sentiment plunges to two-year low

Data: NAHB; Chart: Axios Visuals

Homebuilders are rapidly losing confidence in their ability to turn a profit on new houses.

Why it matters: While price increases remain elevated, signs are growing that the housing market is cooling off.

By the numbers: Homebuilder sentiment experienced its second-largest one-month drop in July, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released Monday.

  • The gauge — which has been reported monthly since 1985 — fell from 67 in June to 55 in July, trailing only April 2020 for as the largest one-month decline.
  • It's the lowest point since May 2020, when the pandemic was still fresh.

What they're saying: “Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Georgia, said in a statement.

Yes, but: Homebuilder confidence remains far above levels seen during the Great Recession, when the NAHB/Wells Fargo index plunged below 20 for 40 of 42 months from mid-2008 through the end of 2011.

What we're watching: Whether price increases begin to buckle.

  • 13% of builders surveyed by NAHB/Wells Fargo "reported reducing home prices in the past month to bolster sales and/or limit cancellations," Konter said.
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