NAHB Housing Market Index: Builder Confidence Retreats in May

Builder confidence retreated in May as mortgage rates above 7% continue to slow down the market. The National Association of Home Builders (NAHB) Housing Market Index (HMI) fell to 45 this month, its first monthly decline since November 2023. The latest reading came was below the forecast of 51.

The National Association of Home Builders (NAHB) Housing Market Index (HMI) is a gauge of builder opinion on the relative level of current and future single-family home sales. The data is collected from a monthly survey of about 900 home builders asking respondents to, "rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes." It is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales; below 50 indicates a negative outlook.

Here's an excerpt from the press release:

“The market has slowed down since mortgage rates increased and this has pushed many potential buyers back to the sidelines,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “We are also concerned about the recent codes rules that require HUD and USDA to insure mortgages for new single-family homes only if they are built to the 2021 International Energy Conservation Code. This will further increase the cost of construction in a market that sorely needs more inventory for first-time and first-generation buyers.”

“A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment,” said NAHB Chief Economist Robert Dietz. “The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing.”

Here is the historical series, which dates from 1985.

NAHB Housing Market Index

Components of the the NAHB Housing Market Index

The NAHB Housing Market Index is calculated based off of three components: current sales, expected sales in the next 6 months, and traffic of prospective buyers. In May, the current sales component fell to 51, the expected sales component dropped to 51, and the traffic component declined to 30.

Housing Market Index: Regional Breakdown

The chart below gives a regional breakdown of the NAHB HMI in four regions of the country: Northeast, Midwest, South, and West. All four regions declined in May.