After steadily rising for seven consecutive months, builder confidence in the market for newly built single-family homes retreated in August, falling six points to 50, as rising mortgage rates nearing 7% (per Freddie Mac) and stubbornly high shelter inflation have further eroded housing affordability and put a damper on consumer demand, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
The August HMI survey also revealed that rising mortgage rates are causing more builders to use sales incentives to attract home buyers. After dropping steadily for four months (from 31% in March to 22% in July), the share of builders cutting prices to bolster sales rose again to 25% in August. The average decline for builders reducing prices remained at 6%. And the share of builders using incentives to bolster sales was 55% in August, higher than in July (52%) but still lower than in December 2022 (62%).
Decline across indices
All three major HMI indices posted declines in August. The HMI index gauging current sales conditions fell five points to 57, the component charting sales expectations in the next six months declined four points to 55 and the gauge measuring traffic of prospective buyers dropped six points to 34.
Regional data
Looking at the three-month moving averages for regional HMI scores, the Northeast increased four points to 56, the Midwest and South were both unchanged at 45 and 58, respectively, and the West edged down a single point to 50.
NAHB's take on the data
“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” says NAHB Chairman Alicia Huey. “But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many home owners elect to stay put because they are locked in at a low mortgage rate.”
“Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%,” says NAHB Chief Economist Robert Dietz. “The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units.”
