MORTGAGE NEWS
2024Issue8 BuildersOutlook
5
MORTGAGE NEWS
Builder Confidence Moves Lower as Market Waits for Rate Cuts
A lack of affordability and buyer hesitation stemming from elevated interest rates and high home prices contributed to a decline in builder sentiment in August .
Builder confidence in the market for newly built single-family homes was 39 in August , down two points from a downwardly revised reading of 41 in July , according to the National Association of Home Builders ( NAHB )/ Wells Fargo Housing Market Index ( HMI ) released today . This is the lowest reading since December 2023 .
“ Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI , as both present sales and traffic readings showed weakness ,” said NAHB Chairman Carl Harris , a custom home builder from Wichita , Kan . “ The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable , affordable housing .”
Almost three-quarters of the responses to the August HMI were collected during the first week of the month when interest rates averaged 6.73 %, according to Freddie Mac . Mortgage rates declined notably the following week to 6.47 %, the lowest reading since May 2023 .
“ With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August , buyer interest and builder sentiment should improve in the months ahead ,” said NAHB Chief Economist Robert Dietz .
The August HMI survey also revealed that 33 % of builders cut home prices to bolster sales in August , above the July rate of 31 % and the highest share in all of 2024 . However , the average price reduction in August held steady at 6 % for the 14th straight month . Meanwhile , the use of sales incentives increased to 64 % in August from 61 % in July , and this was the highest level since April 2019 .
Derived from a monthly survey that NAHB has been conducting for more than 35 years , the NAHB / Wells Fargo HMI gauges builder perceptions of current single-family home sales and 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 .” 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 index charting current sales conditions in August fell two points to 44 and the gauge charting traffic of prospective buyers also declined by two points to 25 . The component measuring sales expectations in the next six months increased one point to 49 .
Looking at the three-month moving averages for regional HMI scores , the Northeast fell four points to 52 , the Midwest dropped four points to 39 , the South decreased two points to 42 and the West held steady at 37 .
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Builder confidence in the market for new single-family homes fell to 39 in August , down two points from a downwardly revised reading of 41 in July . This is the lowest reading since December 2023 . A lack of affordability and buyer hesitation stemming from elevated interest rates and high home prices contributed to the continued decline in builder sentiment .
All three HMI components in August remain below the key threshold of 50 :
• Present sales conditions fell two points to 44 .
• Expected sales in the next six months increased one point to 49 .
• Traffic of prospective buyers declined two pts . to 25 .
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