US homebuilder sentiment falls to its lowest level since the early days of pandemic

US homebuilders not optimistic about the future of constructing new homes

  • Sentiment has dropped to its lowest levels since May 2020.
  • Anticipation of sales, buyer traffic is the worst in more than two years.
  • Low sentiment comes when many Americans believe its a bad time to buy a home.

Confidence in building new homes keeps sputtering. 

U.S. homebuilder sentiment (HMI) in July experienced one of the largest single-month drops in its 37-year history and dropped to its lowest level since May 2020, according to findings conducted by the National Association of Home Builders (NAHB) and Wells Fargo. 

The current sentiment gauge of 55 is a 12-point decline from June and the lowest Housing Market Index (HMI) reading since the start of the COVID-19 pandemic, the figures released Monday showed. 

The sentiment gauge comes at a time when many Americans think it's a bad time to buy a house. The reasons include affordability, high-interest rates, and the ongoing inflation that is impacting Americans on multiple fronts ranging from the price of food, consumer goods, and gas.  

"It's more expensive to buy a home and the housing stock is not sufficient for today's population, Robert Dietz, chief economist for the National Association of Home Builders, told USA TODAY. Dietz said that various experts estimate that a housing shortfall in the U.S. ranges from 1 million to nearly 4 million homes.

"Our forward-looking indicator is pointing more toward a continuous drop as our forecast in building new single-family homes shows likely a 13% decline in 2022 compared to 2021," Dietz said. "It doesn't look good."

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What is homebuilder sentiment?

 Each month, the NAHB/Wells Fargo Housing Market Index surveys the attitudes of its more than 140,000 members on the state of the housing industry.

While any reading above 50 is considered positive sentiment, U.S. homebuilders' sentiment has been falling for seven straight months. 

Why are home builders feeling bad?

The monthly survey of home builders showed declines in three major HMI components. For example, current sales conditions dropped 12 points to 64; Sales expectations for the next six months declined 11 points to 50; And a key metric, the traffic of prospective buyers, fell 11 points to 37.

Dietz reiterates it's taking longer to build a home due to "a lack of lumber, appliances, cabinetry, electrical transformer equipment, land to build on, and workers."

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What's causing housing construction delays?

It now takes about eight months or longer to build a new home, compared with about four to six and a half months before the COVID-19 pandemic, Dietz said. 

NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga., said in a statement production bottlenecks and higher costs are leading some builders to slow down or stop construction altogether.

“(About) 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations,” Konter said.

Dietz also said instead of building single-family homes to own, many builders are opting to build for the rental market. Dietz said he's seen about a 10% growth "when it's usually only 3 percent."

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How does inflation affect homebuilders? 

Dietz said while the U.S. government may be "slow to say we're in a recession, he "certainly believes" that the nation is currently in a housing recession.  

"The housing industry is typically the first to rebound when inflation is beaten back," Dietz said. "Housing will help be an indicator for an eventual rebound. The industry is usually the first sign that weakens and also the first to rebound.

"We'll see what happens this time around."

Follow Terry Collins on Twitter @terryscollins