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Economy in Brief

U.S. Home Builder Index Took a Steep Drop in May
by Kathleen Stephansen, CBE  May 17, 2022

• Builder confidence hit the lowest reading in May since June 2020.

• Current sales and traffic plummeted in May.

• Regional readings were weak.

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 10.4% m/m (-16.9% y/y) to 69 in May from 77 in April. This is the fifth straight month that builder sentiment has declined and the lowest since June 2020. The decline was significantly steeper than the INFORMA Global Markets survey expectations of 76.

The current sales reading fell 9.3% m/m (-11.4% y/y) in May to 78 from April's reading of 86 and stood at its lowest level since July 2020. The index of expected sales in the next six months dropped 13.7% m/m (-22.2% y/y) to 63 in May from 73 in April. The index peaked at 89 in November 2020. The index measuring traffic of prospective buyers fell 14.8% m/m (-28.8% y/y) to 52. The index stood at the lowest level since June 2020.

Regional activity was largely weak in May. The NAHB reported that "growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation are taking a toll on buyer demand". The index for the Midwest fell 17.7% m/m (-28.2% y/y) to 51. The index for the West declined 13.1% m/m (-19.8% y/y)) to 73. The South posted a decline of 7.3% m/m (11.6% y/y) to 76 in May. The Northeast was the only region posting a monthly rise, up 2.7% m/m (-2.6% y/y). 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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