Home Builders’ Confidence Falls Unexpectedly
An indicator of US home builders’ confidence unexpectedly dropped in August, falling to its lowest point in over two and a half years. More than one-third of residential construction companies have cut prices, while around two-thirds are offering some form of incentive to attract buyers deterred by high mortgage rates and economic uncertainty.
The National Association of Home Builders/Wells Fargo Home Market Index
The National Association of Home Builders/Wells Fargo Home Market Index fell to 32, the lowest since December 2022, down from 33 in July. Economists surveyed by Reuters had projected an increase to 34.
The NAHB’s measure of current sales conditions decreased, while a follow-up index of future sales expectations remained unchanged. Buyer traffic, however, rose to its highest level since May, though it remains low overall.
Challenges Facing Home Builders
According to Buddy Hughes, President of the NAHB and a builder/developer from Lexington, North Carolina, “Affordability remains the primary challenge for the housing market, and buyers are waiting for mortgage rates to decline before making a move.”
Home builders are also grappling with supply-side obstacles, including ongoing frustrations related to land development and housing construction regulations.
Mortgage Rate Trends
Recent mortgage rate trends suggest easing due to expectations that the Federal Reserve will resume credit cost cuts in an upcoming meeting.
The average 30-year fixed-rate mortgage, the most common type of home loan in the US, fell to 6.58% last week—the lowest level since October, according to Freddie Mac data. Rates have dropped nearly half a percentage point since the beginning of the year.
The use of price and other sales incentives remains high: 37% of builders have reduced prices—an average of 5%—while 66% have offered some form of sales incentive, the highest percentage since the post-COVID era.
Key Questions and Answers
- What is the indicator that fell unexpectedly? The National Association of Home Builders/Wells Fargo Home Market Index, which measures home builders’ confidence.
- What is the lowest level the index has reached since December 2022? The index fell to 32, the lowest point in over two and a half years.
- What percentage of home builders have cut prices? More than one-third (37%) of residential construction companies have reduced prices, with an average cut of 5%.
- What percentage of home builders are offering sales incentives? Around two-thirds (66%) of home builders are offering some form of sales incentive.
- What factors are contributing to the low confidence among home builders? Affordability challenges and ongoing supply-side obstacles, including regulatory frustrations related to land development and housing construction.
- How have mortgage rates been trending recently? Mortgage rates have shown signs of easing, with the average 30-year fixed-rate mortgage dropping to 6.58% last week—the lowest level since October.
