Homebuilder confidence declined for the first time this year in August, reflecting the difficulties of 7% mortgage rates and reduced housing affordability.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report showed that builder confidence fell 6 points from July to a reading of 50.
The HMI index is a monthly survey that gauges NAHB members’ perception of current single-family sales, expected sales for the upcoming six months, and potential homebuyer traffic. An index of 50 is neutral; higher than 50 indicates that builders view conditions as favorable.
“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” said Alicia Huey, NAHB Chairman and a homebuilder from Birmingham, Alabama.
Huey added that while housing affordability remains a persistent challenge, demand for new construction has been aided by a lack of resale inventory. Many homeowners are locked into low-rate mortgages and are staying put, she said.
In July, shelter inflation accounted for 90% of the Consumer Price Index’s reading of 3.2%, contributing to housing affordability challenges. The NAHB said builders need to be constructing more multifamily and single-family homes to cut into the decade-long inventory shortage.
“The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units,” said Robert Dietz, the NAHB’s chief economist.
Additionally, high mortgage rates called for the return of sales incentives in August. After dropping steadily for four months (from 31% in March to 22% in July), the share of builders cutting prices to bolster sales rose again to 25% in August. The share of builders using incentives to bolster sales was 55% in August, higher than in July (52%). However, it was still lower than in December 2022 (62%).
The NAHB also reported that all three major HMI indices posted declines in August. Homebuilders’ gauge of current sales conditions fell 5 points to 57. The gauge measuring traffic of prospective buyers declined 6 points to 34. And the component charting sales expectations over the next six months fell 5 points to 55.
The three-month moving averages for HMI were mixed across the four major regions. The West edged down a single point to 50, the Midwest and the South remained unchanged, while the Northeast rose 4 points to 56.
In spite of a falling homebuilder confidence index, the Wall Street Journal reported this morning that Warren Buffett’s Berkshire Hathaway made a fresh bet on U.S. homebuilders in the second quarter. The company revealed new positions in D.R. Horton , NVR and Lennar, cumulatively worth more than $800 million at the end of June, when rates were still high but not quite 7%.
Homebuilder stocks have been at record highs in recent months.
Source: housingwire.com