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  • Builder sentiment fell every single month in 2022. Builders say there’s a silver lining.

    Builder sentiment fell every single month in 2022. Builders say there’s a silver lining.

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    The numbers:  The National Association of Home Builders’ monthly confidence index fell two points to 31 in December, the trade group said on Monday.

    It’s the 12th month in a row that the index has fallen.

    Outside of the pandemic, the December reading of 31 is the lowest level since mid-2012.

    A year ago, the NAHB index stood at 84. The index’s 12-month drop is a new record. 

    But it’s not the biggest drop, the NAHB said. The drop in builder confidence between the end of 2004 and the start of 2009 was sharper; the index fell from 71 to 8 in that span.

    Key details: The three gauges that underpin the overall confidence index were mixed:

    • The gauge that marks current sales conditions fell by 3 points. 

    • The component that assesses sales expectations for the next six months rose by 4 points.

    • And the gauge that measures traffic of prospective buyers was unchanged from last month.

    All four NAHB regions posted a drop in builder confidence, led by the South and the Northeast. 

    Big picture: While builders continue to struggle to find buyers with the current rate environment, they’re also seeing a light at the end of the tunnel.

    Buyers are slowly coming back to the table as mortgage rates are no longer above 7%, and home price growth is moderating.

    And with 62% of builders offering incentives like mortgage rate buy-downs, paying points for buyers, and even price reductions, that luring some buyers, per the NAHB.

    About 35% of builders were dropping home prices in December, the NAHB said, with the average price reduction being 8%.

    What the NAHB said: “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,” Robert Dietz, chief economist at the NAHB, 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,” he added.

    But the NAHB is expecting “weaker housing conditions” to persist in 2023, and only forecasts a full recovery in 2024, Dietz said. There is still a gap of 1.5 million housing units, they estimated nationwide.

    Nonetheless, the path to recovery is hard, the builders stressed.

    “In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” Jerry Konter, chairman of the NAHB and a home builder and developer from Savannah, Ga., said in a statement.

    “With construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices,” Konter added.

    What are they saying? “We think home sales will find a floor by the end of the first quarter, helped by the near-75 [basis point] decline in mortgage rates since late October,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a note.

    “But a meaningful recovery is still a long way off, and home prices have much further to fall,” he added.

    Market reaction: The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.597%
    rose to 3.57% on Monday morning.

    While the SPDR S&P Homebuilders ETF
    XHB,
    -1.67%
    traded slightly lower during the morning session, as well as big home builder stocks like D.R. Horton Inc
    DHI,
    -1.44%    ,
    Toll Brothers
    TOL,
    -0.87%    ,
    and Lennar
    LEN,
    -2.28%    .

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  • Home builders sentiment index falls for record tenth month in a row in October. Home builders say the ‘situation is unhealthy and unsustainable.’

    Home builders sentiment index falls for record tenth month in a row in October. Home builders say the ‘situation is unhealthy and unsustainable.’

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    The numbers:  The National Association of Home Builders’ (NAHB) monthly confidence fell 8 points to 38 in October, the trade group said on Tuesday.

    It’s the tenth month in a row that the index has fallen.

    Outside of the pandemic, the October reading of 38 is the lowest level since August 2012.

    A year ago, the index stood at 80.

    The index’s ten-month drop is a new record. The index last fell for 8 months straight in 2006 and 2007.

    Key details: All three gauges that underpin the overall builder-confidence index fell.

    • The gauge that marks current sales conditions fell by 9 points. 

    • The component that assesses sales expectations for the next six months fell by 11 points.

    • And the gauge that measures traffic of prospective buyers fell by 6 points.

    All four NAHB regions posted a drop in builder confidence, led by the south and the west. 

    It’s also likely that this year will be the first time since 2011 that single-family starts see a decline, the NAHB added.

    Big picture: Builders continue to struggle to find buyers with the current rate environment.

    Now they’re saying they’re worried about that depressed demand impacting supply moving forward.

    Specifically, they’re concerned about housing affordability worsening, with potentially fewer new homes being built in the future.

    Mortgage rates have doubled from last year, now exceeding 7%, which has considerably cooled buyer demand. 

    Home price growth is moderating, but prices have not come down substantially — yet. 

    The median sales price for a new home was $436,800 in August, according to the U.S. Census Bureau.

    What the NAHB said: Builders are expecting single-family starts to fall for the first time in 11 years — and expect additional declines through 2023, said NAHB Chief Economist Robert Dietz, due to the Federal Reserve’s projected rate hikes to control inflation.

    “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 a large number of prospective buyers,” he added.

    “This situation is unhealthy and unsustainable,” Jerry Konter, a home builder and developer from Savannah, Ga. and the NAHB’s chairman, said in a statement.
    “Policymakers must address this worsening housing affordability crisis,” he added.

    What are they saying? “The housing sector – sentiment, building activity and sales – is collapsing under the weight of a rapid increase in interest rates and elevated prices, which are crimping affordability and demand,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.

    So expect building activity to be depressed, she added.

    Market reaction: The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.989%
    fell to 3.98% on Tuesday morning.

    While the SPDR S&P Homebuilders ETF
    XHB,
    +2.15%
    traded slightly higher during the morning session, and the big home-builder stocks, from D.R. Horton Inc.
    DHI,
    +2.90%
    to Toll Brothers
    TOL,
    +1.87%
    to Lennar
    LEN,
    +2.97%    ,
    edged higher.

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