Builder confidence in the market for newly built single-family homes in August fell six points to 50, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
“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 Alicia Huey, chairman of NAHB. “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.”
“Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7 percent from a year ago and accounted for a striking 90 percent of the July Consumer Price Index reading of 3.2 percent,” said Robert Dietz, chief economist for NAHB. “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 August HMI survey also revealed that rising mortgage rates are causing more builders to use sales incentives to attract home buyers. After dropping steadily for four months (from 31 percent in March to 22 percent in July), the share of builders cutting prices to bolster sales rose again to 25 percent in August. The average decline for builders reducing prices remained at 6 percent. And the share of builders using incentives to bolster sales was 55 percent in August, higher than in July (52 percent) but still lower than in December 2022 (62 percent).
Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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.
All three major HMI indices posted declines in August. The HMI index gauging current sales conditions fell five points to 57, the component charting sales expectations in the next six months declined four points to 55 and the gauge measuring traffic of prospective buyers dropped six points to 34.