Builder sentiment dropped from 51 in April to 45 in May, falling to its lowest level since January; anything below 50 is considered negative for the National Association of Home Builders’ monthly survey, according to NAHB. It reached a record high of 90 in November 2020.
All three components of the homebuilder index decreased, with current sales conditions falling six points to 51; buyer traffic decreasing four points to 30; and sales expectations in the next six months falling nine points to 51.
High interest rates on home loans reportedly are deterring potential customers, and more builders had to offer incentives to lure buyers.
“A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment,” said NAHB Chief Economist Robert Dietz. “The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing.”
The average rate on the 30-year fixed mortgage has held above 7% since early April.
Twenty-five percent of builders reported cutting prices in May, which is up from 22% in April. The average price discount is holding at 6% for the 11th straight month. Additionally, 59% of builders provided sales incentives of all types in May, which is up from 57% in April.
