Hardware Retailing The Industry's Source for Insights and Information
As mortgage rates are on the decline, builder sentiment rose this month even as builders continue to grapple with rising costs, according to the National Association of Home Builders (NAHB).
In the newly-built single-family homes category, builder confidence is 41, up two points from an August reading of 39, according to the NAHB/Wells Fargo Housing Market Index (HMI). This increase breaks a string of four consecutive monthly declines.
“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” says Carl Harris, NAHB Chairman and custom home builder from Wichita, Kansas. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions. Moreover, builders will face competition from rising existing home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”
The latest HMI survey also revealed the share of builders cutting prices dropped in September for the first time since April, down one point to 32%. The average price reduction was 5%, the first time it has been below 6% since July 2022. Meanwhile, the use of sales incentives fell to 61% in September, down from 64% in August.
“With inflation moderating, the Federal Reserve is expected to begin a cycle of monetary policy easing this week, which will produce downward pressure on mortgage interest rates and also lower the interest rates on land development and home construction business loans,” says Robert Dietz, NAHB chief economist. “Lowering the cost of construction is critical to confront persistent challenges for housing affordability.”
Derived from a monthly survey NAHB has been conducting for more than 35 years, 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 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.
All three HMI indices were up in September. The index charting current sales conditions rose one point to 45, the component measuring sales expectations in the next six months increased four points to 53 and the gauge charting traffic of prospective buyers posted a two-point gain to 27.
