Here’s Why Home Builders Are Down on Housing

After several years of soaring growth and sustained sales, the housing market in the United States is officially starting to cool off.

In the latest Housing Market Index (HMI) from the National Association of Home Builders (NAHB), builder confidence plunged to its lowest levels since May 2020. The HMI fell 12 points to a score of 55, the seventh consecutive month of decline. (The HMI ranges from 0 to 100; it began the year at 83.)

Several issues contributed to the housing market’s continued downslide. Record-setting inflation, supply chain disruptions and falling activity levels in the sector have put pressure on the market for months.

“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” NAHB Chairman Jerry Konter said in a press release.

“In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”

Home builders are seeing firsthand the effect tightening wallets and reduced budgets are having on potential homeowners. The National Association of Realtors reported recently that homes were 80 percent more expensive in June 2022 than June 2019. On top of that, pending home sales dropped 8.6 percent from May to June 2022, and fell 20 percent year-over-year.

“Affordability is the greatest challenge facing the housing market,” NAHB Chief Economist Robert Dietz said in the release. “Significant segments of the home buying population are priced out of the market. Policymakers must address supply-side issues to help builders produce more affordable housing.”

This sort of “market normalization” was to be expected after two years of unprecedented growth in the housing market. At least one positive has already come from housing easing off its furious pace: The building materials supply chain is slowly starting to function as intended again.

Home builder supply chain finally improving as demand slows. pic.twitter.com/i9OGRZI3Ce

— Rick Palacios Jr. (@RickPalaciosJr) July 22, 2022

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