Home builders are less confident than they have been since 2023's holiday season, when mortgage rates neared a peak of 8% and buyer traffic declined significantly.
Builder confidence in the market for newly built single-family homes was 42 in July, down one point from June, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marks the lowest reading since last December.
“While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan.
The July HMI survey revealed that 31% of builders cut home prices to bolster sales in July, growing from 29% in June. The average price reduction held steady at 6% for the 13th straight month, and the use of sales incentives also held steady at 6%, same as June.
“Though inflation is still above the Federal Reserve’s target of 2%, it appears to be back on a cooling trend,” NAHB Chief Economist Robert Dietz pointed out. “NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders and developers. And while home inventory is increasing, total market inventory remains lean at a four-point-four months’ supply, indicating a long-run need for more home construction.”
The HMI also gauges builder perceptions of current single-family home sales and sales expectations, with ratings over 50 indicating that more builders consider conditions as good rather than poor.
July sales conditions fell one point to 47 and the traffic of prospective buyers declined by a single-point to 27. The component measuring sales expectations in the next six months increased one point to 48.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 56, the Midwest dropped four points to 43, the South decreased two points to 44 and the West posted a four-point decline to 37.
