The National Association of Home Builders (NAHB) released a report on Wednesday revealing an unexpected decline in U.S. homebuilder confidence for June. The NAHB/Wells Fargo Housing Market Index dropped to 43, down from 45 in May, contrary to economists' expectations of no change.
This decrease marks the lowest confidence level since the index hit 37 last December. NAHB Chairman Carl Harris attributed the decline to persistently high mortgage rates, which are sidelining many potential buyers. Additionally, home builders face challenges such as increased rates for construction and development loans, labor shortages, and a scarcity of buildable lots.
The downturn in the overall index was influenced by declines across all three component metrics, each reportedly falling below the crucial 50 threshold for the first time since December 2023. The index tracking current sales conditions fell to 48 from 51 in May, the component for sales expectations over the next six months decreased to 47 from 51, and the gauge tracking prospective buyer traffic slipped to 28 from 30.
NAHB Chief Economist Robert Dietz commented on the broader economic implications, noting that persistent shelter inflation, currently at 5.4% year-over-year, is complicating the Federal Reserve's efforts to meet its 2% inflation target. Dietz emphasized the need to expand the nation's housing supply to curb shelter inflation and suggested that a more favorable interest rate environment for construction and development loans would support this goal.
Looking ahead, the Commerce Department is set to release a report on new residential construction for May. Economists anticipate housing starts to rise by 0.7% to an annual rate of 1.37 million units, while building permits are expected to increase by 0.7% to an annual rate of 1.45 million units.
