NAHB Housing Market Index: Builder Confidence Falls to Lowest Level of the Year

Builder confidence fell further in June as mortgage rates above 7% and elevated construction financing continue to slow down the market. The National Association of Home Builders (NAHB) Housing Market Index (HMI) dropped to 43 this month, its lowest level of the year. The latest reading came was below the forecast of 45.

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:

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

“We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%,” said NAHB Chief Economist Robert Dietz. “The best way to bring down shelter inflation and push the overall inflation rate down to the 2% range is to increase the nation’s housing supply. A more favorable interest rate environment for construction and development loans would help to achieve this aim.”

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.

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.