Photo: Robert Clark

American homebuilder sentiment dropped sharply in November as prospective buyers were turned off by rising interest rates and high home prices, according to the latest Home Market Index (HMI) by the National Association of Home Builders (NAHB).

Facing an increasingly competitive housing market marred by low inventory, many shoppers put the breaks on their plans which caused homebuilders to become less confident in the overall state of the housing market.

Yet, despite the sharp drop, builder sentiment still remains in “positive” territory.

“Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices,” said NAHB chairman Randy Noel in a statement.

The HMI is derived from a monthly survey conducted by NAHB that gauges builder perceptions of current single-family home sales and sales expectations for the next six months, as well as buyer traffic.

Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI fell 8 points to a reading of 60 in November. All of the major HMI indices posted declines in November.

The component that measures current sales conditions fell seven points to 67, the component gauging expectations in the next six months dropped 10 points to 65, and the metric charting buyer traffic registered an eight-point drop to 45.

Buyer traffic was the only HMI component that dipped into “poor” territory in November, and NAHB senior economist Robert Dietz said policymakers should take note as additional interest rates are touted over the next 12 months.

“Recent policy statements on economic conditions have lacked commentary on housing, even as housing affordability has hit a 10-year low. Given that housing leads the economy, policymakers need to focus more on residential market conditions,” said Dietz in a statement.

Homebuilders are facing an acute labor shortage and tariffs on imported lumber, which are helping drive overall home prices upward.

“There’s $20 billion in Chinese tariffs connected to the housing industry. The cost is going to be passed on to the consumer,” Dietz tells Livabl.

Meanwhile, new construction levels have not kept up with demand since the bust.

Despite the housing industry adding between 80,000 and 100,000 new workers over the last year, over 270,000 jobs remain unfilled — a post-recession high. The number of unfilled positions has remained above peak levels for the last two years.

“The skilled labor shortage is having the greatest impact on the slow growth rate of the industry. Housing could grow exponentially faster if there was more labor available,” says Dietz.

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