Home builder confidence in November fell six points to a score of 34 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) as higher mortgage rates continue to erode affordability and dampen home sales.
However, recent economic data suggest housing conditions may improve in the coming months, NAHB says.
November is the fourth consecutive month that builder confidence dropped. Since July, the index has declined 22 points and is now at the lowest level since December 2022.
Also of note, nearly the entire HMI data for November was collected before the latest Consumer Price Index was released and showed that inflation is moderating.
“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” says Alicia Huey, chairman of NAHB, in a statement. “Moreover, higher short-term interest rates have increased the cost of financing for home builders and land developers, adding another headwind for housing supply in a market low on resale inventory. While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market.”
“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” adds Robert Dietz, chief economist for NAHB. “In particular, the 10-year Treasury rate moved back to the 4.5 percent range for the first time since late September, which will help bring mortgage rates close to or below 7.5 percent. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”
NAHB is forecasting approximately a 5% increase for single-family starts in 2024 as financial conditions ease with improving inflation data in the months ahead.
But with mortgage rates running above 7% since mid-August, per Freddie Mac data, many builders continue to reduce home prices to boost sales. In November, 36% of builders reported cutting home prices, up from 32% in the previous two months.
This is the highest share of builders cutting prices during this cycle, tying the previous high point set in November 2022.
The average price reduction in November remained at 6%, unchanged from the previous month. Meanwhile, 60% of builders provided sales incentives of all forms in November, down slightly from 62% in October.
In a separate statement, Selma Hepp, chief economist for CoreLogic, notes that “Not only is home affordability impacted by the high rates, but remember that homebuilders use credit as well to pay wages, buy materials, etc. The cost of construction loans also remains pricey due to high interest rates across the board, and that is impacting their ability to do business.”
Photo: Jens Behrmann