Builder confidence amid affordability concerns dropped to its lowest point since the spring of 2015, according to the latest National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI).
The HMI is a weighted average of separate indices for three single-family data points. It asks respondents to rate the market conditions for the sale of new homes at present and in the next six months, as well as the traffic of prospective buyers of new homes. It falls in a range of 0-100.
The HMI in December fell to 56, down from last month’s 60 and the lowest since its been since it was at 54 in May 2015. In the summer of 2016, it was also sub-60.
The drop is likely due to affordability concerns, according to NAHB’s chief economist Robert Dietz.
“The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market,” Dietz said. “This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.”
Despite the number trending downward in the last couple of months, the HMI is still much higher than it was in previous years. Coming out of the recession, it took until June 2013 to even climb about the 50 mark and was down below 10 during the recession.
And even with the recent slide builder sentiment remains in positive territory.
“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” NAHB Chairman Randy Noel, a custom home builder from LaPlace, Louisiana said in a statement. “However, recent declines in mortgage interest rates should help move the market forward in early 2019.”