Persistently high mortgage rates continue to erode builder confidence, as sentiment levels have dropped below the key break-even measure of 50 on a key 0-to-100 indicator for the first time in five months.
Builder confidence in the market for newly built single-family homes in September fell five points to 45, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This follows a six-point drop in August.
“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7 percent and significantly eroded buyer purchasing power,” said NAHB chairman Alicia Huey, a custom builder and developer from Birmingham. “And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing-affordability woes. Insurance cost and availability is also a growing concern for the housing sector.”
More builders are reducing home prices again to bolster sales. In September, 32 percent of builders reported cutting home prices, compared to 25 percent in August. That’s the largest share of builders cutting prices since December 2022 (35%). The average price discount remains at 6 percent.
Meanwhile, 59 percent of builders provided at least some sales incentives in September, more than any month since April 2023.
While more pricing-out is now occurring, the lack of resale inventory at the start of 2023 has shifted the new-construction-buyer mix. A special question in the September HMI survey revealed that 42 percent of new single-family home buyers were first-time buyers on a year-to-date basis in 2023. This is significantly higher than the 27 percent reading from a more normalized market in 2018.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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.
All three major HMI indices posted declines in September. The HMI index gauging current sales conditions fell six points to 51, the component charting sales expectations in the next six months also declined six points to 49, and the gauge measuring traffic of prospective buyers dropped five points to 30.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell two points to 54, the Midwest dropped three points to 42, the South fell four points to 54 the West posted a three-point decline to 47.
HMI tables can be found at nahb.org/hmi.
