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Builder confidence slid downward in December for the 12th straight month, officially making 2022 a year in which homebuilder sentiment posted a decline for every month.
Builder confidence in the market for newly built single-family homes declined two points to 31 on the National Association of Home Builders/Wells Fargo Housing Market Index — the lowest confidence reading since 2012 with the exception of the early months of the COVID-19 pandemic, according to an announcement.
High mortgage rates have soured confidence by causing homebuyers to pull back from the market, and high inflation has caused construction costs to skyrocket.
“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” NAHB Chairman Jerry Konter said in a statement.
An NAHB survey found that 62 percent of homebuilders are using incentives in an attempt to boost sales, such as mortgage rate buydowns and price reductions. But with construction costs up 30 percent since the beginning of the year, there is little room for builders to decrease prices, Konter said, with only 35 percent of builders reporting they reduced prices in December, according to the survey. The average price reduction was 8 percent, up from 5 or 6 percent earlier this year, Konter said.
While December’s data represented the 12th straight decrease in builder sentiment, the 2 percent drop also represented the smallest drop in the last 6 months.
“The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” NAHB Chief Economist Robert Dietz said in a statement. “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations.”
The NAHB’s index gauging current sales conditions fell three points to 36 while traffic of prospective buyers stayed at 20. The measure of sales expectations over the next six months increased four points to 35, indicating that more builders are expecting conditions to improve.
The regional breakdown showed sentiments in the Northeast fell 5 points to 37, while the Midwest dropped four points to 34, the South fell six points to 36 and the West declined three points to 26.