Homebuilder confidence fell for the third consecutive month in July as builders navigate a high consumer mortgage rate environment while also contending with elevated rates for construction and development loans.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell one point month over month to a reading of 42 in July. That is the lowest reading for the index since December 2023.
The HMI report is based on a monthly survey of NAHB members (typically regional and local homebuilders) in which builders 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 persistently high interest rates, 31% of builders reported cutting prices in July to bolster sales, up from 29% in June. Despite this increase, the average price reduction remained at 6%, the same as it has been for the past 13 months, and the use of sales incentives held steady from June at 61%.
Additionally, the NAHB reported that homebuilders’ gauge of current sales conditions fell one point to 47. The gauge measuring traffic of prospective buyers also fell one point to 27, while the component charting sales expectations over the next six months posted a one-point gain to 48.
“While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing,” NAHB Chairman Carl Harris said in a statement.
The three-month moving averages for the HMI fell month over month in three of the four regions tracked by the index, with the West dropping four points to a reading of 37, the South decreasing by two points to 44, the Midwest losing four points for a reading of 43 and the Northeast falling six points to a reading of 56.
Looking ahead, NAHB chief economist Robert Dietz is forecasting that the Federal Reserve will cut interest rates by the end of this year, which would be good news for buyers and builders.
“While home inventory is increasing, total market inventory remains lean at a 4.4 months’ supply, indicating a long-run need for more home construction,” Dietz said in a statement.
