US August home-builder sentiment turns negative, housing recession looms
HOUSTON (ICIS)–An index that measures sentiment among US home builders swung to negative in August, marking the first time since May 2020 that the industry was this pessimistic, a trade group said on Monday.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell for the eighth consecutive month to 49. Anything below 50 indicates pessimism. Above 50 indicates optimism.
The industry has entered a housing recession, brought on by tighter monetary policy from the Federal Reserve and persistently elevated construction costs, said Robert Dietz, chief economist for the NAHB.
Other housing market indicators point to steeper deterioration in the market.
The volume of single-family starts will likely decline in 2022, the first such drop since 2011, Dietz said.
A component of the sentiment index that measures buyer traffic fell to 32, according to the NAHB. Outside of the pandemic, it was the lowest level since April 2014.
Among the home builders surveyed, 19% said they reduced prices during the past month to boost sales or limit cancellations, the NAHB said. Among those reporting price cuts, the average reduction was 5%.
The top reason behind falling house demand was higher interest rates, cited by 69% of the builders surveyed.
The average rate for a 30-year loan was 5.22%, according to Freddie Mac, a company that buys and securitises mortgages. While that is down from the 2022 high of 5.81%, the figure is still 2.25 points higher than a year ago. Moreover, mortgage rates have not been this high since 2009.
Higher mortgage rates are not the only trend raising home prices and discouraging sales. Labour shortages, inflation and supply-chain issues have increased construction costs.
As home affordability declined, the housing market index and its components have deteriorated throughout 2022.
The following table shows the monthly housing market index and its components.
|Housing Market Index||83||81||79||77||69||67||55||49|
|Single Family Sales: Present||89||89||87||86||78||76||64||57|
|Single Family Sales: Next 6 Months||82||80||70||73||63||61||49||47|
|Traffic of Prospective Buyers||69||65||66||61||53||48||37||32|
The housing market is a key consumer of chemicals, driving demand for a wide variety of chemicals, resins and derivative products, such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.
The weakening US housing market has dragged down demand for some plastics and chemicals for which construction is a large end-market.
US contracts for polyvinyl chloride (PVC) were assessed lower because of lower domestic demand and falling spot export prices.
Focus article by Al Greenwood
Thumbnail shows a home being built. Image by NAHB.