Builder Confidence Falls Again, but Experts Are Optimistic

As mortgage rates continue to put pressure on the housing market, homebuilder confidence saw another dip in November, according to new data from the National Association of Home Builders (NAHB).

The NAHB/Wells Fargo Housing Market Index (HMI) found that builder confidence fell six points to 34 in November, following a four-point drop in October when readings hit the lowest level since the start of the year.

“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” said NAHB Chairman Alicia Huey. “Moreover, higher short-term interest rates have increased the cost of financing for homebuilders and land developers, adding another headwind for housing supply in a market low on resale inventory. While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market.”

Builders continue to offer incentives and discounts in order to combat economic challenges, as seen in October and other previous months:

  • 36% of builders reported cutting home prices, up from 32% in the previous two months, and the highest share of builders cutting prices during this cycle (tying the previous high point set in November 2022).  
  • The average price discount remains at 6%. 
  • Meanwhile, 60% of builders provided sales incentives of all forms, down slightly from 62% in October. 

Additionally, all three major HMI indices posted declines in November. The HMI index gauging current sales conditions fell six points to 40, the component charting sales expectations in the next six months dropped five points to 39 and the gauge measuring traffic of prospective buyers dipped five points to 21.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 49, the Midwest dropped three points to 36, the South fell seven points to 42 and the West posted a six-point decline to 35. 

“Homebuilder confidence continues to be hindered by continued high interest rates and low potential homebuyer traffic,” added Dr. Selma Hepp, chief economist from CoreLogic. “Not only is home affordability impacted by the high rates, but remember that homebuilders use credit as well to pay wages, buy materials, etc. The cost of construction loans also remains pricey due to high interest rates across the board, and that is impacting their ability to do business.”

While the numbers are mostly down, experts like NAHB Chief Economist Robert Dietz say there is a light at the end of the tunnel.

“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” said Dietz. “In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”

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