The builder sentiment in the market for single-family homes fell in May as mortgage rates shot higher and building material costs showed no relief.
The National Association of Home Builders/Wells Fargo Housing Market Index shows that sentiment fell in May. The builder sentiment has declined for the fifth month in a row.
It is the lowest reading since June 2020, when builders had a brief negative reaction to the beginning of the Covid epidemic before bouncing back. Demand for single- family homes with outdoor space in the suburbs skyrocketed as the economy shut down. By November 2020, builder sentiment was at a record high.
This month's reading is the lowest since September, when the U.S. trade dispute with China was taking a toll on building material supply chains.
Jerry Konter, a builder and developer in Georgia, said that housing is slowing and leads the business cycle.
Current sales conditions fell 8 points to 78, and sales expectations fell 10 points to 63 in the next six months. The buyer traffic fell by 9 points.
In the first week of May, the 30-year fixed mortgage rate hit a high of 5.64%, after jumping from 3.81% to 5.41% in April. Builders saw inflation hit their costs hard.
The housing market is facing growing challenges, according to Robert Dietz, chief economist of the NAHB.
Entry-level buyers are being hardest hit by rising rates, but the drop in demand is showing up across all levels. There is an increase in cancellation rates for new construction.
In an interview with CNBC on Monday, housing analyst Ivy Zelman said that there was an "inflection point" in the market.
Zelman said that the survey saw a pickup in cancellation rates.
On a three-month moving average, builder sentiment in the Northeast was unchanged at 72. In the Midwest it fell 7 points to 62, and in the South it fell 2 points to 80. Sentiment fell in the West.
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