Homebuilder confidence continued to decline in August as builders contend with a lack of consumer affordability that is tied to stubbornly high interest rates and home prices.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell two points month over month to a reading of 39 in August. This is the lowest reading for the index since December 2023.
The NAHB noted, however, that the majority of survey responses were collected during the first week of the month when the 30-year mortgage rate averaged 6.73%, according to Freddie Mac data. It took a steep dive after that, plummeting to 6.47% as of Aug. 8.
“Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness,” NAHB Chairman Carl Harris said in a statement. “The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”
The HMI report is based on a monthly survey of NAHB members — typically regional and local homebuilders — in which respondents are asked to rate both current market conditions for new-home sales and expected conditions for the next six months, as well as the traffic of prospective new-home buyers.
Scores for each component of the homebuilder confidence survey are then used to calculate an index, with a number greater than 50 indicating that more homebuilders view conditions as favorable than not.
As builders and homebuyers contend with tough macroeconomic conditions, 33% of builders reported cutting prices in August to bolster sales, up from 31% in July. Despite this increase, the average price reduction remained at 6%, the same as it has been for the past 14 months. But the use of sales incentives rose to 64%, up from 61% in July, and the highest level of sales incentives usage since April 2019.
Additionally, the NAHB reported that homebuilders’ gauge of current sales conditions fell two points to 44. The gauge measuring traffic of prospective buyers also fell two points to 25, while the component charting sales expectations over the next six months posted a one-point gain to 49.
The three-month moving averages for the HMI fell month over month in three of the four regions tracked by the index. The Midwest dropped four points to a reading of 39, the South decreased by two points to 42 and the Northeast lost four points for a reading of 52. Month over month, the West held steady at a reading of 37.
Despite the disappointing results in August, NAHB chief economist Robert Dietz remains optimistic.
“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,” Dietz said in a statement.
