Mortgage rates hovering near 7% and elevated rates for construction and development loans continued to put pressure on builder confidence in July, according to the latest National Association of Home Builders (NAHB) data. Experts feel, however, that this downward trend may soon reverse course due to bettering economic signs.
The NAHB/Wells Fargo Housing Market Index (HMI) for July registered at 42, down one point from its June reading. This decrease continued a trend seen over the past few months—starting with a six-point drop in May, a flat reading in April and a two-point fall in June.
July’s decrease, however, is much smaller than past ones, which experts feel is a good sign for future readings. That, and several factors of economic data seem to be improving as of late.
“Though inflation is still above the Federal Reserve’s target of 2%, it appears to be back on a cooling trend. NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for homebuyers, builders and developers,” said NAHB Chief Economist Robert Dietz. “And while home inventory is increasing, total market inventory remains lean at a 4.4 months’ supply, indicating a long-run need for more home construction.”
As confidence continues to decrease, the amount of builders using price cuts increased to 31%, up from June’s rate of 29%. However, the use of sales incentives remained at 61% in July, and the average price reduction held steady at 6% for the 13th straight month.
The three HMI component indices saw varied results in July. The HMI index charting current sales conditions fell one point to 47, and the gauge charting traffic of prospective buyers also declined by one point to 27. On the other hand, the component measuring sales expectations in the next six months increased one point to 48.
“While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing,” said NAHB Chairman Carl Harris.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 56, the Midwest dropped four points to 43, the South decreased two points to 44 and the West posted a four-point decline to 37.
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