Homebuilder confidence fell for the fifth month in a row in May with a steep eight-point drop in the latest NAHB/Wells Fargo Housing Market Index (HMI).    

Affordability challenges, driven by rapidly rising interest rates, double-digit increases in materials costs and continued home-price appreciation continued to sap builder confidence, the National Association of Home Builders said. 

Despite the growing alarm, the index still registered overall optimism about the market for newly built single-family homes, with a reading of 69. Any reading above 50 indicates that more builders view conditions as good than poor.   

“The housing market is facing growing challenges,” NAHB chief economist Robert Dietz said in a press release. “Building-material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high, and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time homebuyers are especially bearing the brunt of this rapid rise in mortgage rates.” 

The index’s measure of builder sentiment about current sales conditions fell eight points to 78, while the six-month sales-expectations measurement plunged 10 points to 63 after a three-point rise in April. The buyer-traffic component fell nine points to 52.   

The Biden Administration on Monday released a housing-supply action plan that aims to close the supply gap within five years. The multi-pronged program includes legislative and administrative actions to help boost the supply of affordable apartments and new homes. 

“Housing leads the business cycle, and housing is slowing,” NAHB Chairman Jerry Konter said. “The White House is finally getting the message and yesterday released an action plan to address rising housing costs that emphasizes a very important element long-advocated by NAHB — the need to build more homes to ease the nation’s housing affordability crisis.” 

Regionally, the three-month moving average of the index fell seven points in the Midwest to 62, six points in the West to 83 and two points in the South to 80. It was flat in the Northeast, holding at 72.   

The NAHB/Wells Fargo survey measures builder perceptions of current single-family home sales, as well as sales expectations for the next six months, as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” The results are then used to calculate the seasonally adjusted index.