Builder sentiment decreased two points to 31 in December; anything below 50 is considered negative for the National Association of Home Builders’ monthly survey, according to cnbc.com. It reached a record high of 90 in November 2020.
The drop marks the 12th straight decline for the NAHB/Wells Fargo Housing Market Index. It also hit its lowest level since June 2012, except for a brief drop at the beginning of the COVID-19 pandemic.
Of the homebuilder index’s three components, sales expectations in the next six months increased four points to 35; buyer traffic was unchanged at 20; and current sales conditions fell three points to 36.
Although mortgage rates recently dropped, they still are about twice what they were a year ago, significantly affecting affordability.
“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB Chairman Jerry Konter. “Our latest survey shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions.”
However, NAHB Chief Economist Robert Dietz says sentiment may hit bottom soon.
“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,” Dietz said. “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.”
Thirty-five percent of builders reduced homes prices in December, which is down from 36% in November. The average price reduction was 8%—up from 5% to 6% earlier in the year.
