The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 69, down from 77 in April. Any number above 50 indicates that more builders view sales conditions as good than poor.
From the NAHB: Builder Confidence Plunges on Rising Interest Rates, Growing Affordability Woes
In a sign that the housing market is now slowing, builder confidence took a steep drop in May as growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation are taking a toll on buyer demand.
Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fifth straight month that builder sentiment has declined and the lowest reading since June 2020.
Housing is the business cycle, and the sector is particularly sensitive to changes for interest rates. And the housing market is facing growing challenges. Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.
All three HMI indices posted major losses in May. The HMI index gauging current sales conditions fell eight points to 78, the gauge measuring sales expectations in the next six months dropped 10 points to 63 and the component charting traffic of prospective buyers posted a nine-point decline to 52.
Looking at the three-month moving averages for regional HMI scores, the Northeast held steady at 72 while the Midwest dropped seven points to 62, the South fell two points to 80 and the West posted a six-point decline to 83.
This graph shows the NAHB index since Jan 1985.
This was well below the consensus forecast, but still historically a decent reading.