This week, the National Association of Home Builders (NAHB) released their July Housing Market Index (HMI). This report measures overall builder confidence across the country, and the report indicates the report fell from 67 last month, to 55 this month, far below the median forecast of 65. More specifically, the dip was led by losses in the “prospective buyer” category of the index, which fell to 37, from 48 in June.
While these shifts may not be favorable, the month-to-month index drop is still not anywhere near the record lows. Furthermore, the housing sector is currently doing better than it was prior to the most recent financial crisis, although it might not be able to maintain this position for much longer. As a matter of fact, if we accept that interest rates and inflation data have already hit their peak, this year, contraction in the housing market could be the beginning of a kind of normalization that will bring about more stability.
Now, it may not seem like much but approximately 10 percent of single-family homebuilding activity is dedicated solely to rentals. NAHB chief economist Robert Dietz specifies this is regardless of whether the builder intends to own the home and rent it out or plans to sell it to an investor. The big thing, here, is that this metric is actually three times the historical market share. And we can expect, Dietz continues, this part of the housing industry will continue to grow as long as interest rates are high.
Dietz also notes, “Affordability is the greatest challenge facing the housing market. Significant segments of the home buying population are priced out of the market.” He goes on to warn that supply-side issues must be addressed first if the industry is going to make any progress toward tackling the affordable housing issue.
NAHB chairman Jerry Konter agrees. Also a homebuilder in Savannah, GA, Konter comments, “Production bottlenecks, rising home-building costs, and high inflation are causing many builders to halt construction because the cost of land, construction, and financing exceeds the market value of the home.”