Homebuilder confidence in August hit a new low for the year, pressured by high mortgage rates and borrowing costs.
Confidence among America’s homebuilders slumped in August to its lowest point of the year, as high interest rates keep mortgage rates and borrowing costs elevated, pressuring both customers and those in the construction industry.
Builder confidence in the market for newly built single-family homes fell to a reading of 39 in August, down two points from 41 in July, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI),
released on Aug. 15.
This is the lowest reading since December 2023 and well below the key threshold of 50, a level at which builders start to become confident about the near-term sales outlook.
A measure of present sales slumped two points in August, to a reading of 44, with a NAHB survey revealing that 33 percent of builders cut home prices to boost sales in August, marking the highest share of discounted homes so far this year.
Prospective-buyer traffic also fell to a new 2024 low in August, declining by two points, to 25.
On an optimistic note, sales expectations in the next six months ticked up one point, to 49, possibly as markets anticipate that the Federal Reserve will cut interest rates.
“With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,” NAHB chief economist Robert Dietz said in a statement.
Freddie Mac said that during the week of Aug. 8, mortgage rates hit their lowest level in more than a year, citing weak labor market data as a catalyst.
“Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less than favorable employment report and financial market turbulence for an economy that remains on solid footing,” Sam Khater, Freddie Mac’s chief economist,
said in a statement. “The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move.”
Despite the fact that mortgage rates have been holding below the 7 percent mark, housing prices continue to rise, putting pressure on prospective homebuyers.
Data
released on Aug. 13 by the National Association of Realtors (NAR) show that the median price of a single-family existing home in the United States grew by 4.9 percent over the past year, to $422,100.
“It’s terrific news for homeowners who are moving ahead in wealth gains,” NAR chief economist Lawrence Yun said in a statement. “However, it’s difficult for those wanting to buy a home as the required income to qualify has roughly doubled from just a few years ago.”
Besides higher prices, first-time buyers also had to contend with limited inventory in the second quarter, according to the NAR, which predicted that housing affordability would improve in coming months as more supply reaches the market.
NAHB chairman Carl Harris, a custom homebuilder from Kansas, said that prospective homebuyers in August reported challenging housing affordability conditions as their top concern.
“The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing,” he said.
Elevated housing costs are also proving to be one of the most persistent factors that are keeping inflation elevated.
Despite overall inflation
easing to 2.9 percent in July, which marked the first dip below 3 percent since 2021, the shelter component of the Consumer Price Index (CPI) unexpectedly rose by 0.4 percent, doubling June’s increase.
The shelter index rose 5.1 percent over the past year, accounting for more than 70 percent of the total 12-month increase in the core inflation measure, which excludes food and energy,
according to the Bureau of Labor Statistics (BLS).
