Builder Confidence Lessens

Affordability concerns and buyer hesitation surrounding elevated interest rates and high home prices influenced a decline in builder sentiment in August, according to the NAHB.

Builder confidence in the market for newly built single-family homes was 39 in August, two points lower from a downwardly revised reading of 41 in July, according to the NAHB/Wells Fargo Housing Market Index (HMI). 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,” says NAHB chairman Carl Harris. “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%, marking 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,” says NAHB chief economist Robert Dietz.

In August, the HMI survey also revealed that 33% of builders cut home prices to bolster sales, above the July rate of 31% and the highest share so far in 2024. Yet, the average price reduction in August held steady at 6% for the 14th straight month. The use of sales incentives increased to 64% from 61% in July, which was the highest level since April 2019.

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, while the gauge of 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.

On a three-month moving average basis regionally, 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.