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Optimism among homebuilders is now lower than it’s been in nearly a decade, aside from the brief period of turbulence in the earliest weeks of the pandemic.
Builders have seen poor traffic from prospective buyers and expect the next six months of sales to look even worse than what they’ve seen in recent weeks, according to the latest builder sentiment survey from the National Association of Home Builders and Wells Fargo.
The result from October — a builder confidence score of 38, where a mark below 50 is considered more “poor” than “good” — extends the streak of declines in builder sentiment to 10 months.
“This will be the first year since 2011 to see a decline for single-family starts,” NAHB Chief Economist Robert Dietz wrote on the trade group’s site. “And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”
Builder sentiment fell across the board across all three categories of the survey.
Their assessment of present sales shifted from moderately good in September to moderately poor in October, with a score of 46. These confidence levels had spent most of the previous two years in the 80s and 90s for years before the ongoing decline began.
Meanwhile, sentiment toward future sales of new homes dropped to a score of 35. And sentiment toward traffic of prospective buyers declined to a score of 25.
The numbers overall reflect a market where sales have already dropped substantially as mortgage rates climbed from below 3 percent last year to above 7 percent today. But they also shed light into builders’ attitudes toward the coming months, which are even more pessimistic.
In addition to declining demand for new homes, builders have dealt with supply-chain issues that have driven up the costs of essential construction materials, and led to extremely high volatility in the prices of certain goods like lumber.
And while lower demand may be taking pressure off these supply chains, the overall cost of building new homes — and financing their construction — remains high.
This economic environment may suppress the number of new homes built in a U.S. market that since the Great Recession has come up short of building enough new homes to meet the general need for housing.
“While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out large number of prospective buyers,” Dietz wrote.