Home Builder Confidence Plummets

housing market index

The National Association of Home Builders (NAHD) housing market index (HMI) plummeted during the month of November, resulting in less confidant potential home buyers as well as home builders.

The HMI is based on a monthly survey issued to home builders to gauge their perceptions of current home sales and expectations for sales in the next few months. Index scores greater than 50 indicate that builders anticipate a good selling market in the coming months.

The NAHB posted the November score of 67, which fell 7 points from the previous month. This reading was the lowest since mid-2016.

Home builders are reporting that there are signs of interested home buyers and new homes will be in demand, however, buyers are cautious due to continued construction labor disputes and rising home prices. Housing prices are continued to increase until foreign tariffs and trade issues can be resolved, lowering the costs of house building materials, especially the cost of lumber.

Though the score is still above 50 which is generally regarded as a positive reflection of the housing market, the November reading is the lowest it has been in over two years. Potential home buyers are expressing concerns to builders about rising interest rates and higher home prices. First-time home buyers are especially nervous to purchase a new home in this current market.

The slow down in the house building boom may also affect the home renovation boom as construction companies face a shortage of affordable supplies due to foreign trade policies.

Though the gauge only reflects a drop over the course of one month, the HMI score is an important economic indicator that may be foreshadowing an overall slower economic pace and a steep decline in the housing market, similar to that of the Great Recession which negatively impacted millions in 2007.

Home buyers will have to continue to monitor the market before committing themselves to new homes with high interest rates to prevent complete economic devastation should the economy stall into another recession.