Homebuilder confidence plunges in July as buyers pull back

Confidence within the US construction industry has plunged to the lowest level since the start of the COVID-19 pandemic. This statement comes as borrowing costs are increasing along with inflation.

The National Association of Home Builders/Wells Fargo Housing Market Index recently ran a survey to get an idea of the current market conditions. The survey showed that homebuilder sentiment dropped by 12 points to 55. This is the second biggest plunge in 37 years of this survey being conducted, with April 2020 coming in first.

Whilst any rating above 50 is considered positive by the survey’s standards, the survey also noted that sentiment has dropped by 24 points since March.

The survey tests 3 main components. Builder sentiment about the current market fell to 64, losing 12 points, while the sales forecast for the next six months lost 11 points and dropped to 50. Sentiment in buyer traffic fell to 37, losing 11 points.

“Affordability is the greatest challenge facing the housing market,” said Robert Dietz, who is an economist for NAHB’s. “Significant segments of the home buying population are priced out of the market.”

Sentiment shot up to 90 in November 2020. As a result of more Americans working from home on a longer-term basis, there was a great demand for bigger houses in more rural locations.

In the recent survey, sales of single-family houses dropped 12 points to 64. “The residential real estate market is in a contraction phase, not necessarily in a recession,” said Jeffrey Roach, chief economist for LPL Financial. “But this hinges on the duration of historic inflationary pressures for home builders from high raw material prices and a tight labor market.”

The Federal Reserve are currently increasing borrowing rates in an attempt to bring inflation under control. According to Freddie Mac, as of the week ending 14 July 2022, the average rate for a 30-year fixed rate mortgage is 5.51%.