Builder sentiment decreased six points to 49 in August; anything below 50 is considered negative for the monthly survey, according to cnbc.com. It reached a record high of 90 in November 2020.
The drop marks the eighth straight decline for the National Association of Home Builders/Wells Fargo Housing Market Index. The index has not been in negative territory since a brief drop at the start of the COVID-19 pandemic; before that, it had not been negative since June 2014.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz.
Of the homebuilder index’s three components, current sales conditions fell seven points to 57; sales expectations in the next six months decreased two points to 47; and buyer traffic fell five points to 32.
Affordability is a significant challenge for buyers. Home prices have been climbing since the start of the pandemic, and the average rate on the 30-year fixed mortgage is nearly twice what it was at the beginning of 2022. However, home price growth has slowed somewhat in recent weeks, and mortgage rates have started to fall.
“The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011,” Dietz said. “However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”