NAHB says rising interest rates created a “housing recession.” The Nov. index of builders’ attitudes dropped 5 points to 33, when anything below 50 is negative.

WASHINGTON – Elevated interest rates, stubbornly high building material costs and declining affordability is pushing more buyers to the sidelines, according to November’s National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). And that is dragging down builder sentiment.

Builder confidence in the market for newly built single-family homes posted its 11th straight monthly decline in November, dropping five points to 33, according to the HMI released Wednesday. It’s the lowest confidence reading since June 2012, except for spring 2020 when the pandemic began to impact the world.

“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” says NAHB Chairman Jerry Konter. “With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production.”

More incentives to attract buyers

To bring more buyers into the marketplace, 59% of builders report using incentives, with a big increase in usage from September to November.

In November, for example, 25% of builders say they’re paying points for buyers, up from 13% in September. Mortgage rate buy-downs rose from 19% to 27% over the same timeframe.

In addition to any incentives, 37% of builders cut prices in November, up from 26% in September. They report an average price reduction of 6%. However, the current average price reductions are still lower than those offered during the Great Recession in 2008, which averaged 10%-12%.

“Even as home prices moderate, building costs, labor and materials – particularly for concrete – have yet to follow,” says NAHB Chief Economist Robert Dietz. “Policymakers must seek solutions that create more affordable and attainable housing. With inflation showing signs of moderating, this includes a reduction in the pace of the Federal Reserve’s rate hikes and reducing regulatory costs associated with land development and home construction.”

All three HMI components posted declines in November. Current sales conditions fell 6 points to 39, sales expectations in the next six months declined 4 points to 31 and traffic of prospective buyers fell 5 points to 20.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell 6 points to 41, the Midwest dropped 2 points to 38, the South fell 7 points to 42 and the West posted a five-point decline to 29.

Derived from a monthly survey NAHB has conducted for more than 35 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” It also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

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