Due to persistently high mortgage rates, American homebuilders are feeling negative about their industry for the first time in seven months.
KEY POINTS
- In September, the single-family housing market’s builder confidence dropped 5 points to 45.
- The threshold between optimistic and pessimistic feeling is fifty.
- Both the current state of sales circumstances and sales expectations for the next six months declined by six points each, reaching 51 and 49 respectively. Buyer volume decreased by 5 points to 30.
The National Association of Home Builders/Wells Fargo Housing Market Index’s measure of builder confidence in the single-family housing market dropped 5 points in September to 45. The decline comes after a 6-point decline in August. Anything less than 50 is seen negatively.
All three of the index’s components saw declines. Both the current state of sales circumstances and sales expectations for the next six months declined by six points each, reaching 51 and 49 respectively. To 30, buyer traffic dropped 5 points..
The lower affordability caused by rising mortgage rates is cited by builders. Since June, the popular 30-year fixed mortgage’s average rate has been above 7%.
As a result, developers are beginning to provide additional incentives once more. Compared to 25% in August, 32% of builders reported price reductions in September. Since December 2022, when 35% of builders reduced their pricing, this is the highest proportion to do so.The average price cut was 6%.
“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” Robert Dietz, the NAHB’s chief economist, stated in a statement.
Even among the purchasers who are still on the market, a change is taking place. In this month’s study, the NAHB included a new question, and the results revealed that 42% of new single-family home purchasers this year had never purchased a home before. That exceeds the historical average of about 27% by a significant margin.
Even if there is still a shortage of housing on the market for existing homes, builders still face challenges in addition to rising loan rates.
“Builders continue to struggle with a lack of construction workers, buildable lots, and distribution transformers, which is exacerbating the problem of home affordability on the supply-side front. The cost and availability of insurance are also becoming bigger issues for the housing industry, according to Birmingham, Alabama-based homebuilder and developer Alicia Huey, NAHB chairman.
Regionally, sentiment in the Northeast dropped 2 points to 54 on a three-month moving average. It decreased by 3 points to 42 in the Midwest. It decreased by 4 points to 54 in the South and by 3 points to 47 in the West.
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