Housing Market Index Falls to Lowest Reading Since June 2020
Washington, DC, July 7, 2022-Rising inflation and higher mortgage rates are slowing traffic of prospective homebuyers and putting a damper on builder sentiment, reports the National Association of Homebuilders (NAHB).
In June, the NAHB/Wells Fargo Housing Market Index (HMI) fell two more points to a level of 67, the lowest HMI reading since June 2020. Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market amidst a high-inflation, slow-growth economic environment, according to NAHB.
Single-family starts decreased 9.2% in May - largely because of supply chain challenges, NAHB reports - to an annual rate of 1.55 million. Single-family permits decreased as well, dropping 5.5% and bringing the annual rate down to 1.05 million, its lowest pace since July 2020. Further declines are expected in the months ahead.
Total existing-home sales in May fell 3.4% to a seasonally adjusted annual rate of 5.41 million. On a year-over-year basis, sales were 8.6% lower than a year ago.
New-home sales, however, posted a solid gain in May as some buyers rushed into the market in advance of the Federal Reserve’s June interest rate hike. New-home sales surged 10.7% to a 696,000 seasonally adjusted annual rate, although year-to-date sales are 10.6% lower compared to a year ago.
"Higher interest rates will undoubtedly slow housing and business investment, acting as a drag on economic growth," says the NAHB Economics Group, which forecasts a "modest" recession in mid-2023. "The unemployment rate is therefore expected to rise from near cycle lows to above 5% in 2023, while broader-based inflation will ease further as the economy slows."