Market Report: Homebuilder Sentiment Plunges

Homebuilders in the United States are feeling pessimistic about their business for the first time in seven months, mainly due to persistently high mortgage rates.

According to the National Association of Home Builders/Wells Fargo Housing Market Index, builder confidence in the single-family housing market dropped by 5 points in September, reaching a value of 45. This decrease follows a 6-point drop in August. Any value below 50 is considered negative.

All three components of the index registered declines. Current sales conditions fell by 6 points to 51, sales expectations for the next six months also dropped by 6 points to 49, and buyer traffic decreased by 5 points to 30.

Builders attribute the weaker affordability to higher mortgage rates. Since June, the average rate on the popular 30-year fixed mortgage has been above 7%.

As a result, builders are starting to offer more incentives. In September, 32% of builders reported cutting prices, compared with 25% in August. This represents the largest share of builders reducing prices since December 2022, when 35% were doing so. On average, the price cut amounted to 6%.

“High mortgage rates are clearly impacting 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, NAHB’s chief economist.

The composition of buyers in the market is also undergoing a shift. The NAHB included a new question in this month’s survey and found that 42% of new single-family home buyers so far this year were first-time buyers. This is significantly higher than the historical average of around 27%.

However, builders continue to face challenges beyond higher interest rates. They are still grappling with shortages of construction workers, buildable lots, and distribution transformers, which are further exacerbating housing affordability issues. Additionally, insurance costs and availability are becoming growing concerns for the housing sector, according to NAHB Chairman Alicia Huey.

Regionally, on a three-month moving average, sentiment in the Northeast fell by 2 points to 54, while in the Midwest it dropped by 3 points to 42. In the South, it declined by 4 points to 54, and in the West, it decreased by 3 points to 47.