Home Builders: In a Funk Despite Respectable Sales
Summary
- The housing market index posted its 13th consecutive sub-50 reading in May
- Buyer traffic and hoped-for sales disappoint
The housing market index published by the National Association of Home Builders fell 6 index points in May to 34, continuing a soft pattern that has been in place since the latter part of 2022. (The index can range from 0 to 100, with 50 representing the dividing line between favorable and unfavorable markets.) The measure has registered only six readings of 50 or above since August 2022, and the strongest result in this span was not especially impressive at 56. The measure has seen weaker episodes in the past, especially during and after the housing bust and financial crisis in 2008-09, but observations in the 30s are notably soft.
The poor results are surprising in light of the recent pace of sales for new homes, which is respectable by historical standards. Sales last year and so far this year have averaged 684 thousand (annual rate), matching results in 2019, the year before the pandemic. These results trail the robust totals during the low-interest-rate environment in 2021 and early 2022, and they are far below the bubble conditions that developed in the early and mid-2000s, but they compare favorably with other years.
While sales are respectable in an absolute sense, they are probably lagging results expected by home builders given conditions in the market for existing homes. Currently, the number of existing homes for sale is lean. Many households that might desire to trade up or downsize are instead remaining in place because they hold low-rate mortgages. The number of homes on the market in the past few years has fluctuated in a range around 1.0 million, below the previous record low of 1.38 million in December 1994. With a limited inventory in the existing home market, builders were probably envisioning a pronounced shift to the new home market, but this has not occurred. The housing market in total (new and existing sales combined) is depressed (chart, above right), and the weak overall conditions in housing are probably influencing the moods of home builders.
The disappointment among home builders with the current pace of sales is evident in two of the components of the headline index. Views on the current pace of sales and the volume of buyer traffic are both weak by historical standards (charts, below). The current sales index, like the headline measure, fell below 40 in May (off 8 index points to 37). The buyer traffic index eased two points to 23. The final component of the headline index (expected sales in six months) was firm around the turn of the year (an average of 61 from October through January), but it has faded to 42 in the past four months. Apparently, builders have abandoned hope for a surge in sales.
Michael J. Moran
AuthorMore in Author Profile »Before joining Haver Analytics in 2025, Michael J. Moran was the chief economist of Daiwa Capital Markets America Inc. He was responsible for preparing the firm’s economic forecast and interest rate outlook. He traveled frequently to visit the clients of Daiwa Capital Markets and wrote weekly economic commentary. Mr. Moran also was involved in the flux of financial markets, as he spent a portion of each day on Daiwa’s trading floor interpreting economic statistics and Federal Reserve activity for traders and salespeople. Mr. Moran is quoted frequently in the financial press, and he appears regularly on cable news shows. He also has published articles in several journals and periodicals. Before joining Daiwa Capital Markets America, Mr. Moran worked as an economist at the Federal Reserve Board in Washington, D.C. where he analyzed a broad range of issues dealing with the financial sector of the economy and regularly briefed the Board of Governors. He was on the faculty of Pennsylvania State University from 1979 to 1980 and taught on a part-time basis at George Washington University from 1980 to 1987.
Mr. Moran received his Ph.D. in economics from Pennsylvania State University in 1980 and a B.S. in business administration from the University of Bridgeport in 1975. He was a CFA charter holder from 2002 until 2016.
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