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Builder Confidence is Waning

Housing InventoryBuilder confidence is declining, according to the National Association of Home Builders [1] (NAHB)/Wells Fargo Housing Market Index [2] (HMI), which fell eight points to 60 in November.

The data for this index which was released on Monday indicated declines across the board. While the index measuring current sales conditions fell seven points to 67, the component gauging expectations in the next six months dropped 10 points to 65 and the metric charting buyer traffic registered an eight-point drop to 45, the NAHB said.

The monthly HMI is derived from a monthly survey of NAHB members and gauges builder perceptions of the current single-family home sales and sales expectations for the next six months. The survey also asks builders to rate traffic for prospective buyers.

In November, growing concerns over affordability were the key factor that drove the builder sentiment down. Despite the sharp drop, however, NAHB said that builder sentiment still remained in positive territory.

“Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices,” said Randy Noel, Chairman, NAHB.

The prospect of future interest rate hikes had also made builders take a more cautious approach on the market, according to Robert Dietz, Chief Economist, NAHB. “For the past several years, shortages of labor and lots along with rising regulatory costs have led to a slow recovery in single-family construction,” Dietz said. “While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall.”

Additionally, Dietz said that recent policy statements on economic conditions lacked commentary on housing even as housing affordability hit a decade low. “Given that housing leads the economy, policymakers need to focus more on residential market conditions,” he said.