Home builders are gearing up for more business going into the fall, with the National Association of Home Builders (NAHB) reporting increases to all three of its September housing market indices.
Builder confidence in the market for newly built, single-family homes rose two points from August to 41. This severs a string of four consecutive monthly declines, according to the NAHB/Wells Fargo September Housing Market Index, released Tuesday.
Persistently high borrowing costs have not only eroded new-home affordability for borrowers, but have also kept costs elevated for builders who saw average effective rates on loans for land acquisition and speculative single-family construction the highest they’ve been since 2018.
These high costs have eroded builder confidence, despite demand for newly built homes remaining strong, experts say. Easing mortgage rates in August pushed applications for new home purchases up 4.4% annually that month, according to the Mortgage Bankers Association’s Builder Applications Survey, released Tuesday as well.
Current sales conditions rose one point to 45; six-month sales expectations increased four points to 53, and traffic of prospective buyers posted a two-point gain to 27.
“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions. Moreover, builders will face competition from rising existing home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”
Single-family housing starts rose 15.8% to a seasonally adjusted annual rate of 992,00 units in August, according to Census data out Wednesday.
“Single-family permits, a leading indicator of future starts, also rebounded, but remain down 6% from their recent 2024 peak," First American Senior Economist Sam Williamson said. "The increase in August follows several months of declines, perhaps pointing to a stabilization in single-family permits.”
The share of builders cutting prices dropped one point to 32% in September – the first decrease since April. The average price reduction was 5%, marking the first time it’s been below 6% since July 2022. Meanwhile, the use of sales incentives fell to 61%, down from 64% in August.
The Federal Reserve is expected to reduce its benchmark interest rate at the conclusion of its two-day Federal Open Market Committee meeting on Wednesday, Sept. 18. This will ease affordability challenges for borrowers and builders alike.
“With inflation moderating, the Federal Reserve is expected to begin a cycle of monetary policy easing this week, which will produce downward pressure on mortgage interest rates and also lower the interest rates on land development and home construction business loans,” said NAHB Chief Economist Robert Dietz. “Lowering the cost of construction is critical to confront persistent challenges for housing affordability."
