Housing Market Fears as Home Builder Confidence Suffers Near-Record Plunge

Home builders' confidence in the housing market has fallen significantly in July, dropping to 55 in the National Association of Home Builders (NAHB) Housing Market Index (HMI) released on Monday.

The new number is a major drop from the 67 reported in June, the lowest number reported in the index since the midst of the pandemic in June 2020. The drop of 12 points is the largest on record except for the fall in April 2020, which was the height of the COVID-19 lockdown in the United States.

Barely above the 50 score, which means home builders see the market positively for sales, the new index is a scorching sign that the U.S. housing market is navigating dangerous waters.

The biggest drop in the index on a regional basis was in the South and West regions, which fell 15 and 16 points respectively. (Use the dropdown menu in the chart below to view the index in different regions).

What Is the NAHB Index?

The NAHB index is a survey conducted every month among hundreds of single-family home builders in the U.S. that measures their sentiment towards the housing market.

In the survey, home builders are asked to rate the current sales of single-family homes and sales expectations for the next six months, while also assessing the traffic of prospective buyers.

Their responses are used to compile an overall index where any number above 50 indicates that a majority of home builders feel confident about selling their homes in the housing market.

What Does the July Index Mean for the U.S. Housing Market?

The NAHB index remains above 50, but it has been consistently falling for seven months straight. In December 2021, home builders' confidence in the housing market was quite high at 84, but since then it has been a steep decline in the NAHB index.

In January, the index dropped to 83. In June, the index reported its lowest number since June 2020, with a meager 67. Now, the index reached 55—10 points under what many expected the NAHB to report for July.

Home builders' confidence is considerably higher for current sales, reporting a 64 score in the NAHB index. But when it comes to builders' expectations for sales in the next six months, the situation precipitates the index report of only 50.

Even worse expectations are reported for the traffic of prospective buyers, at 37—much lower the threshold of confidence required for home builders to read the housing market positively.

The index is widely considered to reflect the state of the housing market across the entire country. Plunging numbers are a clear sign that something isn't working in the U.S. housing system, a claim that appears to be supported by declining home sales and soaring house prices and mortgage interest rates.

Many have raised the alarm over a possible crash of the housing market in the U.S., as a combination of inflation, increased interest and mortgage rates, unaffordable house prices and lack of supply contribute to squeezing new home buyers out of the market and are widely considered to be pushing the market to a slow grind.