Ongoing economic and geopolitical uncertainty as well as elevated mortgage rates and rising construction costs kept builder sentiment muted in August, according to the National Association of Home Builders (NAHB).
Builder confidence in the market for newly built single-family homes inched up one point to 35 in August, according to the NAHB/Wells Fargo Housing Market Index (HMI). Despite the marginal improvement, the HMI remained below 40, as it has for 16 consecutive months. An index value below 50 indicates more builders view conditions as poor than good.
“While builder sentiment edged higher in August, builders continued to contend with high construction costs and broader economic uncertainty,” NAHB chairman Bill Owens said. “Rising gas and diesel prices are pushing up material costs, and spec home building remains weak as many prospective buyers stay on the sideline.”
According to the August HMI, 35% of builders cut prices during the month, essentially unchanged from the share the past two months. Similarly, the share of builders using sales incentives in August (63%) was also level with the previous month. The results of the NAHB HMI mirror results from Zonda’s monthly builder survey. In response to Zonda’s July survey, builders categorized it as the worst month of the year, with nearly 80% of respondents indicating demand was slower than expected in the typically slow month of July.
“Our latest builder survey continues to show signs of weakness in the home building market,” said NAHB chief economist Robert Dietz. “Custom home builders continue to report stronger market conditions than spec builders, reflecting better conditions at the higher end of the market. Smaller, less dense markets are also outperforming larger metropolitan areas, and smaller builders report relatively stronger conditions than larger builders.”
The HMI is composed of three indices gauging builder perceptions of current sales conditions, sales expectations for the next six months, and traffic of prospective buyers.
The index measuring current sales conditions increased two points to 39 while the metrics tracking future sales expectations and prospective buyer traffic held steady at 43 and 23, respectively.
On a regional basis, the three-month moving HMI averages declined in the Northeast and South and held steady in the Midwest and the West.
