Builder confidence in the market for newly built single-family homes fell for the fourth straight month in November, influenced by mortgage rates that approached 8% in recent weeks. The NAHB/Wells Fargo Housing Market Index (HMI) declined six points to 34 this month, falling to its lowest reading since December 2022. Overall, the HMI has declined 22 points since July. An index reading below 50 indicates more builders view conditions as poor than good.
“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” says NAHB chairman Alicia Huey. “Moreover, higher short-term interest rates have increased the cost of financing for home builders and land developers, adding another headwind for housing supply in the market low on resale inventory.”
Despite the overall negative perception of the market, the NAHB says recent economic data suggests conditions may improve in the coming months. The November HMI survey was conducted before the latest Consumer Price Index was released and showed inflation is moderating.
“While builder sentiment was down again in November, recent macroeconomic data points to improving conditions for home construction in the coming months,” says NAHB chief economist Rob Dietz. “In particular, the 10-year treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing-home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”
Taking data trends into consideration, the NAHB is forecasting approximately a 5% increase for single-family starts in 2024 as financial conditions ease with improving inflation data.
However, at present, with mortgage rates remaining above 7%, many builders continue to reduce home prices in an effort to increase sales. Thirty-six percent of builders reported cutting prices in November, up from 32% in both September and October. The share of builders cutting prices in November ties the previous high point in the current housing cycle set in November 2022. The average price reduction remained at 6%. Six in 10 builders provided sales incentives of all forms in November, another effort to stir demand and boost sales.
The HMI, derived from a monthly survey conducted by the NAHB, gauges builder perceptions of current single-family home sales and sales expectations for the next six months. The survey also asks builders to rate traffic of prospective buyers.
Each HMI component posted declines in November. The index gauging current sales conditions fell six points to 40, the component charting sales expectations in the next six months declined five points to 39, and the index measuring traffic of prospective buyers fell five points to 21.
On a regional basis, the three-month moving average for the HMI in the Northeast fell one point to 49 and dropped three points to 36 in the Midwest. The South posted a seven-point decline to 42, while the West experienced a six-point decline to 35.
