“Housing recession”: NAHB. Homebuilders slash prices as traffic from potential new home buyers plunges and cancellations rise
Homebuilder sentiment plunges for the 8th consecutive month, their shares are down 19% to 36% year-to-date despite the meteoric summer rally.
By Wolf Richter for WOLF STREET.
“Tightening monetary policy from the Federal Reserve and persistently high construction costs have caused a housing slump,” said Robert Dietz, chief economist for the National Association of Home Builders.
Single-family homebuilder confidence, after the second-biggest drop in data last month, fell again in August, the eighth straight month of declines, after falling every month this year, “as interest rates high prices, ongoing supply chain issues and high house prices continue to exacerbate housing affordability challenges,” according to NAHB.
With today’s index value of 49, the NAHB/Wells Fargo Housing Market Index is now back to where it was in June 2014, and below where it was in April 2006. , on the eve of the real estate crisis.
The NAHB/Wells-Fargo housing market index has plunged in all four regions so far this year, but unevenly, with the index hitting lowest levels in the Midwest and West, and only the South still being above 50, if at all. It should be noted that in the West (red line), after having increased again at the start of the year, the index has plunged since March from 91 to 42. The graph shows from December to August:
Traffic from potential buyers has plunged.
“And in a disturbing sign that consumers are now sitting on the sidelines due to rising housing costs, the number of August buyers in our survey of builders was an all-time low of 32. since April 2014 with the exception of spring 2020 when the pandemic started. hit”, the NAHB Report said.
Traffic is an indication of buyer interest. And with the headwinds buyers are facing, including sky-high prices and mortgage rates over 5%, they have lost interest:
Homebuilders cut prices to support sales and limit cancellations: 19% of builders said they cut prices in the past month to “increase sales or limit cancellations,” NAHB said. That was up from the 13% of builders who said they had cut prices in the previous month.
Regarding cancellations: Based on data from John Burns Real Estate Consultingthe cancellation rate homebuilders experienced in July, despite their efforts to limit it by cutting prices, soared to 17.6%, surpassing the April 2020 lockdown (click image for enlarge):
In terms of price reductions: They started earlier and faster in California, Texas and the Southwest, according to John Burns, during the three months to July. Price reductions include incentives:
The Census Bureau reported earlier that the median price of new single-family homes sold fell a combined 12% in May and June:
The NAHB Current Sales Index fell every month since February, and in August fell 7 points, after the 12 point drop in July, to a value of 57. A value of over 50 means that even more manufacturers are assessing current sales as “good” rather than “bad”. », and price reductions would certainly help.
Future sales look worse: The NAHB index of sales over the next six months fell 2 points, after plunging 11 points in July, to an index value of 47, the second month in a row that more builders have called their future sales a “bad” rather than “good.”
Home Builders Inventories, despite summer’s meteoric rally, are down between 19% and 36% so far this year, including between 0.8% and 2.1% so far today (data via Y-Charts):
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