Builder sentiment flatlined in April as mortgage rates remained close to 7%, inciting mixed reactions from housing analysts on the new-home market.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, (HMI) released Tuesday, showed builder confidence in the market for newly-built single-family homes was 51 in April, unchanged from March. This breaks a four-month period of gains for the index, which still remains above the breakeven point of 50.
“April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed,” said NAHB Chief Economist Robert Dietz. “With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year, and that mortgage rates will moderate in the second half of 2024.”
First American Deputy Chief Economist Odeta Kushi was encouraged by historical gains in new construction.
“The March housing starts data signals a loss of momentum for single-family construction, but perspective is important,” Kushi said. “Single-family groundbreaking is still up 21% compared with a year ago and is more than 20% above the five-year pre-pandemic average.”
Kushi expects the new-home market to continue outperforming the existing-home market soon, due to the fact that builders are not rate locked-in like existing homeowners are.
“Builder sentiment was flat in April, but remains above the break-even point of 50, indicating positive sentiment,” she pointed out. “The long-term housing shortage, coupled with a lack of existing-home inventory and builders’ ability to offer incentives has helped to buoy new single-family construction. However, builders continue to grapple with challenges stemming from the ‘five Ls’ – labor, lots, legal issues, lumber, and lending. ‘Higher-for-longer’ mortgage rates are also a major headwind for builders and potential home buyers alike.”
March’s housing starts were at a seasonally adjusted annual rate of 1.321 million, below consensus expectations of 1.485 million. This is 14.7% below the revised February estimate of 1.549 million and is 4.3% below the March 2023 rate of 1.380 million.
Building permits, a leading indicator of future starts, came in at 1.458 million, below expectations of 1.510 million. Single‐family permits, starts and completions all fell month over month in March – permits down by 5.7%, starts by 12.4% and completions, 10.5%.
NAHB Chairman Carl Harris encouraged regulators to consider their role in housing affordability.
“With many frustrated buyers back on the fence waiting for interest rates to fall, policymakers can help ease affordability challenges by reducing inefficient regulatory rules that raise housing costs and limit supply,” said Harris, a custom home builder from Wichita, Kansas.
The trade association’s April HMI survey also revealed that 22% of builders cut home prices this month, down from 24% in March and 36% in December 2023. However, the average price reduction in April held steady at 6% for the 10th straight month. Meanwhile, the use of sales incentives ticked down to 57% in April from a reading of 60% in March.
The HMI index charting current sales conditions in April increased one point to 57, while the component gauging traffic of prospective buyers also edged one point higher to 35. The component measuring sales expectations in the next six months fell two points to 60.
Regionally, three-month moving HMI averages in the Northeast increased four points to 63. The Midwest gained five points to hit 46, the South rose one point to 51, and the West registered a four-point gain at 47.
