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Builder confidence dropped below the break-even measure of 50 for the first time in five months as persistently high mortgage rates continued to erode the outlook of homebuilders.
Builder confidence in the market for newly built single-family homes slid five points to a score of 45 on the National Association of Homebuilders/Wells Fargo Housing Market Index in September, as mortgage rates jumped above 7 percent. That 5-point drop followed a 6-point drop in August, according to data released this week.
“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7 percent and significantly eroded buyer purchasing power,” NAHB Chairman Alicia Huey said in a statement.
Builders also continue to face skilled labor shortages and high prices for essential items and services such as insurance, according to Huey.
“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,” Huey said. “Insurance cost and availability is also a growing concern for the housing sector.”
As mortgage rates continued their upward climb, 32 percent of builders reported slashing their prices to bolster sales, with the average discount at 6 percent according to the report — the largest share of builders cutting prices seen since Dec. 2022. Meanwhile, 59 percent of builders reported offering some form of incentive to boost sales, the largest share since April.
“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” NAHB Chief Economist Robert Dietz said.
A special question included in the September HMI survey revealed that 42 percent of new single-family home buyers were first-time buyers throughout 2023 — significantly higher than the 27 percent reading registered during the more normalized market of 2018, according to the NAHB.
The survey gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor” along with the traffic of prospective buyers and current sales conditions. All three indices posted declines for the month of September, according to the NAHB.
Regionally, the Northeast index fell two points to 54, the Midwest dropped three points to 42, the South fell four points to 54 and the West posted a three-point decline to 47.
The report came the same week as new census data revealed housing starts plunged in August to the lowest level seen since June 2020, further indicating a dropoff in construction activity as builders respond to high interest rates.