U.S. Home Builder Index Took a Steep Drop in May
Summary
- Builder confidence hit the lowest reading in May since June 2020.
- Current sales and traffic plummeted in May.
- Regional readings were weak.
The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 10.4% m/m (-16.9% y/y) to 69 in May from 77 in April. This is the fifth straight month that builder sentiment has declined and the lowest since June 2020. The decline was significantly steeper than the INFORMA Global Markets survey expectations of 76.
The current sales reading fell 9.3% m/m (-11.4% y/y) in May to 78 from April's reading of 86 and stood at its lowest level since July 2020. The index of expected sales in the next six months dropped 13.7% m/m (-22.2% y/y) to 63 in May from 73 in April. The index peaked at 89 in November 2020. The index measuring traffic of prospective buyers fell 14.8% m/m (-28.8% y/y) to 52. The index stood at the lowest level since June 2020.
Regional activity was largely weak in May. The NAHB reported that "growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation are taking a toll on buyer demand". The index for the Midwest fell 17.7% m/m (-28.2% y/y) to 51. The index for the West declined 13.1% m/m (-19.8% y/y)) to 73. The South posted a decline of 7.3% m/m (11.6% y/y) to 76 in May. The Northeast was the only region posting a monthly rise, up 2.7% m/m (-2.6% y/y). These regional series begin in December 2004.
The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low". The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's SURVEYS database. The Informa Global Markets survey is in Haver's MMSAMER database.
Kathleen Stephansen, CBE
AuthorMore in Author Profile »Kathleen Stephansen is a Senior Economist for Haver Analytics and an Independent Trustee for the EQAT/VIP/1290 Trust Funds, encompassing the US mutual funds sponsored by the Equitable Life Insurance Company. She is a former Chief Economist of Huawei Technologies USA, Senior Economic Advisor to the Boston Consulting Group, Chief Economist of the American International Group (AIG) and AIG Asset Management’s Senior Strategist and Global Head of Sovereign Research. Prior to joining AIG in 2010, Kathleen held various positions as Chief Economist or Head of Global Research at Aladdin Capital Holdings, Credit Suisse and Donaldson, Lufkin and Jenrette Securities Corporation.
Kathleen serves on the boards of the Global Interdependence Center (GIC), as Vice-Chair of the GIC College of Central Bankers, is the Treasurer for Economists for Peace and Security (EPS) and is a former board member of the National Association of Business Economics (NABE). She is a member of Chatham House and the Economic Club of New York. She holds an undergraduate degree in economics from the Universite Catholique de Louvain and graduate degrees in economics from the University of New Hampshire (MA) and the London School of Economics (PhD abd).
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