Builder Confidence Drops Into Negative Territory

WASHINGTON – Builder confidence in the market for newly built single-family homes in September fell five points to 45, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released Monday. The drop comes on the heels of a six-point August decline.

“The two-month decline in builder sentiment coincides with mortgage rates jumping above 7% and significantly eroded buyer purchasing power,” says NAHB Chairman Alicia Huey. “And on the supply-side, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which further adds to housing affordability woes. Insurance cost and availability is also a growing concern for the housing sector.”

“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” adds NAHB Chief Economist Robert Dietz. “Policies that will allow builders to increase the housing supply is the best remedy to ease the nation’s housing affordability crisis and curb shelter inflation.”

Dietz says shelter inflation posted a 7.3% year-over-year gain in August, topping inflation’s overall rise of only 3.7%.

With mortgage rates above 7%, more builders are reducing home prices. In September, one out of three (32%) builders said they cut prices compared to 25% in August – the largest share of builders cutting prices since December 2022 (35%). The average price discount remains at 6%.

Builders still rely more on sales incentives, however, with two out of three (59%) saying they offered some kind of incentive in September.

Current high demand for new homes is based, in large part, on the dearth of existing homes listed for sale coupled with high buyer demand. That’s also changing the mix of newly constructed homes as builders try to appeal to buyers on the lower end of the spectrum. A special question in the September survey found that 42% of new single-family homebuyers were first-time buyers over the past year. That’s notably higher than the 27% reading from a more normalized market in 2018.

All three major HMI indices within the larger overall score posted September declines:

• The index gauging current sales conditions fell six points to 51
• The component charting sales expectations in the next six months declined six points to 49
• The gauge measuring traffic of prospective buyers dropped five points to 30

Looking at the three-month moving averages for regional HMI scores, the Northeast fell two points to 54, the Midwest dropped three points to 42, the South fell four points to 54 the West posted a three-point decline to 47.

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

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