Homebuilder confidence hit its lowest level since December in August as high interest rates and record home prices continue to dampen buyer appetite for new homes.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 39 in August, down two points from a revised figure of 41 in July. Economists polled by Bloomberg had expected a reading of 43.
Any number below 50 indicates that more builders rate conditions as poor than good.
“Challenging housing affordability remains the top concern for prospective homebuyers in the current HMI reading, as both current sales and traffic numbers showed weakness,” NAHB Chairman Carl Harris, a Wichita, Kansas-based custom home builder, wrote in a statement.
The drop in builder confidence comes as mortgage rates have fallen to their lowest level in more than a year. The average rate on the 30-year fixed-rate mortgage fell to 6.47% from 6.73% last week, Freddie Mac reported last Thursday. New data is due at noon today.
However, the NAHB reported that about three-quarters of the responses to the August survey were collected in the first week of the month, when mortgage rates were above 6.7%.
As a result, builders cut home prices to stimulate sales in August, with 33% of builders reporting they had cut home prices, the highest percentage so far this year and up from 31% in July. Meanwhile, the use of sales incentives jumped to 64% in August from a reading of 61% in July, marking the highest level since April 2019.
“With current inflation data pointing to rate cuts by the Federal Reserve and mortgage rates falling significantly in the second week of August, buyer interest and builder sentiment should improve in the coming months,” NAHB Chief Economist Robert Dietz wrote in the press release.
