REAL ESTATE NEWS

Home Builder Confidence Inches Up Despite Cost Concerns

Home builders appeared to be slightly more optimistic about the market for single-family homes.

Even before the Fed yesterday made its keenly awaited announcement that it would trim interest rates by 0.5%, home builders appeared to be slightly more optimistic about the market for single-family homes, a September survey by the National Association of Home Builders (NAHB) revealed. But they still worry about rising costs.

Optimism was based on a modest drop in the yield on Treasury notes that caused mortgage rates to dip earlier in August and the first part of September, the NAHB said. The survey gauges builders' perceptions of current single-family home sales and sales expectations as good, fair, or poor. A seasonally adjusted Housing Market Index (HMI) is calculated from these scores, where a number over 50 indicates a positive outlook, and below that threshold indicates a poor outlook.

The seasonally adjusted HMI rose in September from 39 in August to 41 – still below both the benchmark rate and the scores reached in the months before August. The HMI for current single-family sales rose from 44 to 45 –again below previous levels this year. There was a more positive view of the next six months, however, with the benchmark rising from 49 to 53, but still lower than its levels in the spring. There was also a modest improvement in opinions about traffic from prospective buyers; the score rose from 25 to 27.

The biggest improvements in the HMI were in the Northeast, where it climbed from 46 to 55, still below levels in the months of February through June, in the Midwest (38 to 42) and the West (37 to 42). The HMI for the South rose slightly from 39 to 40.

For the first time since April fewer builders – 32% – dropped their prices in September. And the price dip of 5% was the first time the cut had been less than 6% since July 2022. The use of sales incentives also fell from 64% in August to 61% in September.

However, builders still can't fully relax because of rising expenses and consumers' pocketbooks. Lowering the cost of construction is crucial to improving housing affordability, the report noted.

"The cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions. Moreover, builders will face competition from rising home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates," said NAHB chairman Carl Harris.

The NAHB's next HMI report will reveal whether the Fed's recent interest rate cut improves builders' confidence and the effect of more houses coming to market on the industry.


Source: GlobeSt/ALM

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