
Mortgage rates and elevated rates for construction and development loans continue to weigh on home builder sentiment, according to the NAHB.
Builder confidence in the market for newly built single-family homes was 42 in July, a point lower than June, according to the NAHB/Wells Fargo Housing Market Index (HMI). The July reading marks the lowest level of builder confidence since December 2023.
“While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower this year as inflation data are showing signs of easing,” says NAHB chairman Carl Harris.
In July, the HMI survey revealed that 31% of builders cut home prices in attempts to bolster sales, an increase from 29% the previous month. The average price reduction in July held steady at 6% for the 13th consecutive month, according to the NAHB. The use of sales incentives was flat from June, with 61% of home builders offering incentives.
“Though inflation is still above the Federal Reserve’s target of 2%, it appears to be back on a cooling trend. NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders, and developers,” says NAHB chief economist Robert Dietz. “And while home inventory is increasing, total market inventory remains lean at a 4.4 months’ supply, indicating a long-run need for more housing construction.”
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 are calculated as a numerical value, where any number over 50 indicates that more builders view conditions as good than poor.
The index charting current sales conditions in July fell one point to 47 while the gauge of traffic of prospective buyers also declined by a single point to 27. The component measuring sales expectations in the next six months increased a point to 48.
On a three-month moving average basis regionally, the Northeast reported a six point HMI decline to 56, the Midwest experienced a four point drop to 43, the South posted a two point index decrease to 44, and the West reported a four point drop in the HMI to 37.