The threat of higher interest rates combined with supply chain hurdles and rising material costs impacted builder sentiment this month.
Builder confidence in the market for newly-built single-family homes dropped two points lower to 79 in March from a downwardly revised reading in February, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
This lower reading is the fourth-straight month of declines in builder sentiment despite solid demand for housing. The latest reading also marks the first time the HMI has fallen below a level of 80 since last September.
The March HMI recorded the lowest future sales expectations in the survey since June 2020, according to the NAHB. Builders are reporting growing concerns that increasing construction costs (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market.
"While builders continue to report solid buyer traffic numbers, helped by historically low existing home inventory and a persistent housing deficit, increasing development and construction costs have taken a toll on builder confidence," NAHB Chairman Jerry Konter said.
The HMI index gauging current sales conditions fell three points to 86 and the gauge measuring sales expectations in the next six months dropped a whopping 10 points to 70. The component charting traffic of prospective buyers posted a two-point gain to 67.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell seven points to 69, the Midwest dropped one point to 72 and the South fell three points to 83. The West moved up one point to 90.
"Builders are more concerned that increasing construction costs and higher interest rates will price prospective home buyers out of the market," NAHB Chief Economist Robert Dietz said. "While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022."