Builder sentiment inched higher in October due to cooler inflation and expectations that mortgage rates will moderate in the coming months.
According to the NAHB/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes was 43 in October, up two points from the reading in September.
“While housing affordability remains low, builders are feeling more optimistic about 2025 market conditions,” says NAHB chairman Carl Harris. “The wild card for the outlook remains the election, and with housing policy a top tier issue for candidates, policymakers should be focused on supply-side solutions to the housing crisis.’
The share of builders cutting prices held steady at 32% in October while the average price reduction returned to the long-term trend of 6%. The use of sales incentives inched up to 62% in October from 61% in September.
“Despite the beginning of the Fed’s easing cycle, many prospective home buyers remain on the sideline waiting for lower interest rates,” says NAHB chief economist Robert Dietz. “We are forecasting uneven declines for mortgage interest rates in the coming quarters, which will improve housing demand but place stress on building lot supplies due to tight lending conditions for development and construction loans.”
The 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 used to calculate a seasonally adjusted index, with a reading over 50 indicating more builders view conditions as good than poor.
In October, all HMI indices increased compared to the previous month. The index tracking current sales conditions rose two points to 47, the component measuring sales expectations in the next six months rose four points to 57, and the metric charting traffic of prospective buyers rose two points to 29.
On a regional basis, the three-month moving averages for HMI scores increased in three of four regions. The Northeast HMI increased two points to 51, the Midwest score moved two points higher to 41, and the West increased three points to 41. The South HMI score remained steady at 41.
