Builder confidence hits multi-year low
Homebuilder sentiment has plummeted to its lowest level since December 2022, with expectations for single-family sales over the next six months declining to their weakest point since November 2023. The pessimism stems from multiple challenges facing the industry.
“New-home sales tumbled in May, marking the steepest monthly decline since May 2022,” said Odeta Kushi, First American deputy chief economist. “Mortgage rates increased in May, reducing affordability, while elevated macroeconomic uncertainty continues to keep buyers on the sidelines.”
Rising costs squeeze margins
Construction input costs remain elevated, with overall residential construction input prices up more than 40% compared to pre-pandemic levels in May. Recent tariff actions threaten to push costs even higher, potentially adding $10,900 per home if they remain in place.
“The drivers behind builders’ increased pessimism are multi-faceted,” Kushi noted. “Elevated mortgage rates impact buyer affordability and result in higher financing costs for builders, who are already grappling with higher construction input costs.”
Inventory challenges mount
The number of new houses for sale increased slightly in May to the highest level since 2007, representing 9.8 months of supply at the current sales rate. Completed homes for sale rose to 119,000, an almost 16-year high.