Homebuilders have started to cut prices and offer incentives again to attract buyers
Builder confidence retreated in August after seven steady months of improvement, as mortgage rates and housing affordability hurdles dampened consumer demand, according to the National Association of Home Builders (NAHB).
The NAHB/Wells Fargo Housing Market Index (HMI) – a gauge of builder perceptions of current single-family home sales and sales expectations for the next six months – declined six points to the breakeven point of 50.
All three HMI indices fell in August, with the component measuring current sales conditions edging down five points to 57, the component charting sales expectations in the next six months down four points to 55, and the gauge measuring traffic of prospective buyers down six points to 34.
“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,” said 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 homeowners elect to stay put because they are locked in at a low mortgage rate.”
NAHB chief economist Robert Dietz added that stubbornly high shelter inflation had negatively impacted housing affordability.
“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%,” Dietz said. “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.”
The report also revealed that elevated interest rates are causing more builders to use sales incentives to attract homebuyers, up two percentage points from July, to 55% in August. The share of builders reducing prices also increased to 25%.
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