The decline of mortgage rates to their lowest level in 19 months has instilled new confidence in homebuilders in September, according to the latest National Association of Home Builders (NAHB) data.
The NAHB/Wells Fargo Housing Market Index (HMI) for September registered at 41, up two points from its August reading, which was the lowest level seen since December 2023. This increase broke a four-month streak of drops—including a six-point drop in May, a two-point fall in June, a one-point decrease in July and another two-point fall in August.
“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.
As confidence sees its first increase in months, NAHB also reported that the share of builders cutting prices dropped one point in September to 32%, the first decrease since April. The average price reduction also fell to 5%, dipping below 6% for the first time since July 2022. The use of sales incentives fell as well to 61%, down from 64% last month.
The three HMI component indices saw increases in September. The HMI index charting current sales conditions rose one point to 45, and the gauge charting traffic of prospective buyers saw a two-point gain to 27. In addition, the component measuring sales expectations in the next six months jumped four points to 53.
While confidence has improved, Harris noted that elevated construction costs continue to put pressure on homebuilders, which will continue “holding back some enthusiasm for current housing market conditions.”
“Moreover, builders will face competition from rising existing home inventory in many markets,” he added.
However, NAHB Chief Economist Robert Dietz pointed out that the Federal Reserve’s expected rate cut this week “will produce downward pressure on mortgage interest rates and also lower the interest rates on land development and home construction business loans.”
He continued that, “Lowering the cost of construction is critical to confront persistent challenges for housing affordability.”
Mortgage and real estate professionals who spoke to RISMedia last month did not agree on how quickly a rate cut might spark activity in the sales market, however, though lower rates are expected to boost sales in the medium-term.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell three points to 49, the Midwest increased one point to 40, the South decreased one point to 41 and the West increased two points to 39.
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