Homebuilder sentiment drops to lowest level in two years as housing demand slows

A contractor frames a house under construction in Lehi, Utah, U.S., on Wednesday, Dec. 16, 2020. Private residential construction in the U.S. rose 2.7% in November.

Sentiment among the nation's homebuilders fell for the sixth month in a row to the lowest level in over a year.

The National Association of Home Builders/Wells Fargo Housing Market index decreased in June. Positive is defined as anything over 50. The index reached 90 at the end of 2020 as demand for larger homes in the suburbs increased.

It was the first time since June 2020 that buyer traffic fell into negative territory. Current sales conditions and sales expectations fell in the next six months.

NAHB Chairman Jerry Konter said that six consecutive monthly declines for the HMI was a sign of a slowing housing market. The entry-level market has been affected by the decline in housing affordability and builders are taking a more cautious stance.

Since the beginning of the year, the average rate on the 30-year fixed mortgage has gone up. According to Mortgage News Daily, in January it was close to 3% and as of Tuesday it was over 6 percent. Less than half of what it was a year ago has been achieved.

Supply-side challenges are still faced by builders.

Robert Dietz, NAHB's chief economist wrote, "Residential construction material costs are up 19% year-over-year with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines."

Sentiment in the Northeast fell on a three-month average. It lost 6 points in the Midwest. In the South it fell 2 points to 78 and in the West it fell 9 points to 74.