The July survey from the National Association of Home Builders saw the largest decline in confidence among homebuilders in the nearly four-decade history of the index except for the early days of the pandemic.
Rising materials costs. A supply chain mess. A labor shortage. Those were the big challenges Birmingham, Alabama, homebuilder Alicia Huey said she was already up against.
“We’re living every day trying to keep our head above water because it takes so much longer to build a house these days,” Huey said.
Huey, who’s also NAHB’s first vice chair, said with Federal Reserve interest rate hikes pushing mortgage rates higher, “that has kicked a lot of people out of the market.”
Confidence fell from a reading of 67 to 55 in the NAHB survey, in which 13% of builders reported cutting prices to encourage sales.
As the housing market shows signs of softening, some builders are considering putting projects on the rental market. And the U.S. needs more affordable rentals, said Barbara Fields, a vice president at Abt Associates.
“We simply, since the last recession, have not gotten up to building at the level we need to be,” Fields said.
About 10% of single-family homebuilding is dedicated to rentals, said NAHB Chief Economist Robert Dietz, “whether that’s the builder holding the home and renting it or selling it to an investor. That’s about triple the historical market share. And we expect that part of the industry to grow as interest rates remain elevated.”
The inventory of homes for sale is also on the rise, said Bill McBride, who analyzes housing data for his blog, Calculated Risk.
“It’s really going to impact the housing market,” he said. “We’re going to see areas with price declines.”
That will likely happen in local markets that saw some of the steepest price increases during the pandemic.