Higher Mortgage Rates Continue to Put a Damper on Home Builder Sentiment

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Builder confidence in the housing market dropped in June to a score of 43 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” says Carl Harris, chairman of NAHB, in a statement. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

“We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4 percent year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2 percent,” adds Robert Dietz, chief economist for NAHB. “The best way to bring down shelter inflation and push the overall inflation rate down to the 2 percent 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.”

The June HMI survey also revealed that 29% of builders cut home prices to bolster sales in June, the highest share since January 2024 (31%) and well above the May rate of 25%. 

However, the average price reduction in June held steady at 6% for the 12th straight month. 

Meanwhile, the use of sales incentives ticked up to 61% in June from a reading of 59% in May.

Photo: Jens Behrmann

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