The National Association of Home Builders/Wells Fargo Housing Market Index, a survey designed to gauge market conditions, found builder sentiment dropped 12 points to 55. That marked the largest single-month drop in the survey's 37-year history with the exception of April 2020, when the reading plummeted 42 points to 30 after the start of the Covid-19 pandemic.

Any rating above 50 on the index is still considered positive, but sentiment has now fallen 24 points since March, when mortgage rates began moving higher. The average rate on the 30-year fixed mortgage has nearly doubled since January and is now hovering just below 6%.

Sentiment stood at 80 in July of last year after hitting a record high of 90 in November 2020, when the pandemic sparked a rash of homebuying among people looking for more space in less urban areas. Now, concerns about inflation and recession are among the factors taking a toll on builder sentiment.

Of the index's three components, builder sentiment about current sales conditions dropped 12 points to 64, while sales expectations for the next six months fell 11 points to 50 and sentiment about buyer traffic declined 11 points to 37. That last component is now solidly in negative territory.

"Affordability is the greatest challenge facing the housing market," said Robert Dietz, NAHB's chief economist. "Significant segments of the home buying population are priced out of the market."