With mortgage rates remaining high, little change in inflation and the Fed still not making any decisions when it comes to a rate cut, homebuilder confidence remains troubled as it hit its lowest reading since December 2023, according to the latest National Association of Home Builders (NAHB) data.
The NAHB/Wells Fargo Housing Market Index (HMI) for June registered at 43, down two points from its May reading.
While 2024 saw a strong start to homebuilder confidence readings—with a seven-point jump in January, a four-point rise in February and a three-point rise in March—this reversed in May with a six-point drop from the flat reading of 51 seen in April.
“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” said NAHB Chairman Carl Harris. “Homebuilders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”
As confidence continues to decrease, the amount of builders using price cuts increased to 29%, the highest reading since January, and well above May’s rate of 25%. The use of sales incentives also ticked up from 59% in May to 61% in June. However, the average price reduction in May held steady at 6% for the 12th straight month.
While this is potentially good news for buyers shopping for a new build, NAHB is warning that ongoing macroeconomic pressures continue to threaten the housing market.
“We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%,” said NAHB Chief Economist Robert Dietz in a statement. “The best way to bring down shelter inflation and push the overall inflation rate down to the 2% range is to increase the nation’s housing supply. A more favorable interest rate environment for construction and development loans would help to achieve this aim.”
All three HMI component indices posted declines in June, and all are below the key threshold of 50 for the first time since December 2023. The HMI index charting current sales conditions fell three points to 48, the component measuring sales expectations in the next six months fell four points to 47, and the gauge charting traffic of prospective buyers declined two points to 28.
Looking at the three-month moving averages for regional HMI scores, the Northeast held steady at 62, the Midwest dropped three points to 47, the South decreased three points to 46 and the West posted a two-point decline to 41.
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