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Economy in Brief

U.S. Home Builder Index Unexpectedly Plunges in July to the Lowest Level since May '20
by Winnie Tapasanun  July 18, 2022

• Builder confidence falls for the seventh straight month, indicating continued weakness in the housing market.

• All the three HMI components worsen w/ the deepest m/m fall in potential buyers' traffic (-22.9%).

• Regional weakness is widespread w/ the largest m/m decline in the West (-25.0%).

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo decreased 17.9% m/m (-31.3% y/y) to 55 in July after drops of 2.9% to 67 in June and 10.4% to 69 in May, The July level was the seventh consecutive monthly drop to the lowest level since May 2020's 37. A reading of 68 had been expected in the INFORMA Global Markets survey. The July index was 38.9% below the record-high 90 in November 2020 and below 80 in July 2021.

All the three HMI components continued their decreases this month. The index of present sales conditions fell 15.8% (-25.6% y/y) to 64 in July, the sixth m/m fall in seven months to the lowest level since June 2020, after a 2.6% decline to 76 in June. The level was 33.3% below the record-high 96 in November 2020 and below 86 last July. The index of expected sales over the next six months slid 18.0% (-38.3% y/y) to 50, the seventh straight m/m slide to the lowest level since May 2020, after a 3.2% decline to 61. The level was 43.8% below the peak of 89 reached in November 2020 and below 81 last July. The index measuring traffic of prospective buyers worsened 22.9% (-43.1% y/y) to 37, the sixth m/m decrease in seven months to the lowest level since May 2020, after a 9.4% drop to 48. The index was 51.9% below the record-high 77 in November 2020 and below 65 last July.

All the regional index readings dropped this month. The index for the West worsened 25.0% (-42.9% y/y) to 48 in July, the fourth successive m/m decrease to the lowest level since May 2020, on top of a 13.5% drop to 64 in June. The index for the South slid 20.0% (-27.7% y/y) to 60, the sixth monthly slide in seven months to the lowest level since May 2020, after a 1.3% decline to 75. The index for the Midwest fell 10.9% (-30.0% y/y) to 49, the third m/m fall in four months to the lowest level since May 2020, following a 7.8% rebound to 55. The index for the Northeast fell 8.1% (-21.9% y/y) to 57 after an 18.4% drop to 62, registering the second consecutive m/m fall to the lowest level since June 2020 following two straight m/m rises. These regional series begin in December 2004.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low". The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's SURVEYS database. The Informa Global Markets survey is in Haver's MMSAMER database.

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