U.S. homebuilders are feeling pessimistic about their business for the first time in seven months, due to persistently high mortgage rates.
Builder confidence in the single-family housing market dropped by 5 points in September, bringing the National Association of Home Builders/Wells Fargo Housing Market Index down to 45. This decline follows a 6-point drop in August. Any index score below 50 is considered negative.
All three components of the index experienced declines. Current sales conditions decreased by 6 points to 51, sales expectations for the next six months dropped by 6 points to 49, and buyer traffic decreased by 5 points to 30.
Builders attribute weaker affordability to higher mortgage rates. Since June, the average rate on a 30-year fixed mortgage has remained above 7%.
Consequently, builders are once again offering more incentives. In September, 32% of builders reported slashing prices, compared to 25% in August. This is the highest share of builders reducing prices since December 2022, when 35% were doing 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 choosing to delay purchasing a home until long-term rates decrease,” explained Robert Dietz, the NAHB’s chief economist, in a statement.
There is also a shift occurring among the buyers who are still active in the market. The NAHB added a new question to this month’s survey and found that 42% of new single-family home buyers this year were first-time buyers. This is significantly higher than the historical average of around 27%.
While builders are still benefiting from the limited supply in the existing sales market, they are facing other obstacles besides higher interest rates.
“Builders are continuing to face shortages of construction workers, buildable lots, and distribution transformers, which are further exacerbating housing affordability challenges. Additionally, rising insurance costs and limited availability are becoming growing concerns for the housing sector,” stated NAHB Chairman Alicia Huey, a homebuilder and developer from Birmingham, Alabama.
Regionally, on a three-month moving average, sentiment in the Northeast fell 2 points to 54. In the Midwest, it dropped 3 points to 42.
In the South, it declined 4 points to 54, and in the West, it decreased 3 points to 47.
