Builders navigate many challenges in the market for new home construction. Recently, those challenges have been formidable.

According to a survey from the National Association of Home Builders (NAHB), confidence among its members is trending downward. Builder confidence fell two points in June, from 37 to 35 on the index generated by the survey.

NAHB teams up with Wells Fargo to produce the monthly Housing Market Index (HMI). Any number over 50 on the index is generally considered a positive reflection of builder sentiment and confidence. According to NAHB, the low number for June represents the 14th straight month that sentiment has remained below 40. This is a streak not seen since the nation’s foreclosure crisis in 2011–2012.

Positive and negative territory notwithstanding, month-to-month momentum reveals an even longer trend. The index has been generally traveling southward for several years, from a peak of 90 in November 2020. 

The HMI is based on surveys of builders regarding their perception of current single-family home sales and sales expectations for the next six months. Builders are asked to rate their perception of these two conditions as “good,” “fair” or “poor.” They are also asked to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Their responses are then used to calculate the seasonally adjusted index, which ranges from 1 to 100.

NAHB cites several factors that may contribute to the negative sentiment. These include the high and growing cost of building materials, the increase in mortgage rates and the general lack of affordability for buyers.

Many builders are taking steps to compensate for these strains. According to the NAHB/Wells Fargo survey, 35% of builders cut their prices in June. That’s an increase of two percent points from 32% in May. The average price reduction was 6% in June, which was the same rate as the previous month. 

In addition to price reductions, 62% of builders also used other sales incentives in June. That, too, is an increase of one percentage point from 61% in May. NAHB notes the share of builders offering incentives has remained above 60% for 15 consecutive months.
Market constraints aren’t the only challenges builders face. NAHB also points to regulatory barriers.

“Costly and inefficient regulatory policy is clearly impeding the ability of builders to increase the housing supply,” said NAHB’s chief economist, Robert Dietz. He points to a new NAHB study, which calculates that “government regulation, taxes, fees and other costs add more than 26% to the price of an average single-family home.”