Homebuilder Sentiment Plunges in July

The National Association of Homebuilders (NAHB) sentiment index is based on a monthly survey of homebuilders and considers the current sales, expected sales over the next 6 months, and prospective buyer traffic. Link to NAHB website.

The homebuilder sentiment index plunged by 12 points from 67 in June to 55 in July. Although a sentiment score of 55 is still decent and far from the scores of 13 to 40 seen in the 2008 housing crash, it is the pace of the recent decline that is most notable. 

The monthly decline was the second largest in the history of the index and points to a rapidly cooling housing market. The pace of the deterioration is also notable given that the year began scorching hot with a sentiment in the mid 80s.

The survey reported that 13% of builders reduced home prices in the past month to bolster sales and / or limit cancellations.

While all regions weakened significantly, the west was the weakest and saw the biggest deceleration from a score of 89 in January to just 48 in July.

From a practical standpoint, this implies that if you are in the market to buy a house, you can be more patient as negotiating power shifts towards the buyers and away from the sellers. However, if you are looking to sell a house, it might be a good idea to price competitively to sell the house quickly. Pricing too high could lead a house to remain unsold for a long time along with the risk of being exposed for longer to a market that seems to be only getting worse.