U.S. homebuilders are feeling pessimistic about their business for the first time in seven months, due to stubbornly high mortgage rates.
Builder confidence in the single-family housing market fell 5 points in September to 45 according to the National Association of Home Builders/Wells Fargo Housing Market Index. This drop follows a drop of 6 points in August. Anything below 50 is considered negative.
All three components of the index declined. Current sales conditions fell 6 points to 51, and sales expectations over the next six months also fell 6 points to 49. Buyer traffic fell 5 points to 30.
Builders cite lower affordability due to higher mortgage rates. The average rate on the popular 30-year fixed mortgage has exceeded 7% since June.
As a result, manufacturers are starting to offer more incentives again. In September, 32% of builders said they had reduced their prices, compared to 25% in August. This is the largest proportion of builders reducing their prices since December 2022, when 35% did so.
The average price drop was 6%.
“High mortgage rates are clearly weighing on builder confidence and consumer demand as a growing number of buyers choose to delay purchasing a home until long-term rates fall,” he said. said Robert Dietz, NAHB chief economist, in a statement.
A shift is also occurring among buyers who are still in the market. The NAHB added a new question to this month’s survey and found that 42% of new single-family home buyers since the beginning of the year were first-time buyers. This is much higher than the historical norm of around 27%.
While builders are still taking advantage of the lack of supply in the existing sales market, they also face obstacles other than higher interest rates.
“On the supply side, builders continue to face shortages of construction workers, buildable land and distribution transformers, further exacerbating housing affordability issues. Cost and Availability insurance is also a growing concern for the housing industry,” the NAHB said. President Alicia Huey, builder and real estate developer from Birmingham, Alabama.
Regionally, on a three-month rolling average, confidence in the Northeast fell 2 points to 54. In the Midwest, it fell 3 points to 42.
In the South, it decreased by 4 points to 54 and in the West, by 3 points to 47.