The numbers: Builder confidence fell to a five-month low in September as buyer demand weakened due to persistently high mortgage rates.
Buyers are struggling with interest rates above 7% and are choosing to wait for them to fall, causing the National Association of Home Builders’ monthly confidence index to fall 5 points to 45 in September, the trade group said Monday.
Despite a lack of inventory of previously owned homes, builders have continued to lose confidence as fall approaches, with growing concerns that high interest rates will erode buyers’ purchasing power. The share of builders who cut house prices to stimulate demand rose in September.
The September figure fell short of what economists on Wall Street had expected.
This is the second month in a row that sentiment among builders has fallen. A year ago the index stood at 46.
Key details: Builders are boosting sales incentives to attract buyers who are waiting on the sidelines for high rates.
The share of builders cutting prices to boost sales rose to a nine-month high, rising to 32% in September, up from 25% the month before, the NAHB said. The average price reduction was 6%.
About 59% of builders also used incentives other than price reductions to improve sales in September.
The September survey also showed that there had been an increase in the share of starters. Of the buyers of new single-family homes, 42% were starters, the NAHB notes, which is higher than the 2018 standard of 27%.
The three indicators underlying the overall builder confidence index have fallen:
Builders were pessimistic about current sales conditions. That figure dropped by 6 points.
They were gloomy about future sales. The meter dropped by 6 points.
Builders also saw a drop in traffic among potential buyers. That figure dropped by 5 points.
Big picture: Despite their own bleak outlook, housebuilders and new homes have been a bright spot in the housing market so far, as the main challenge facing the sector at the moment is low supply.
And with the country facing a housing shortage due to a decade of underconstruction, builders could face steady buyer demand in the coming years even as interest rates and home prices remain high.
What the NAHB said: “High mortgage rates are clearly taking a toll on builder confidence and consumer demand as a growing number of buyers choose to delay a home purchase until long-term interest rates move lower,” said Robert Dietz, chief economist at NAHB. rack.
What do they say: “It is clear that the recent increase in mortgage rates [is] negatively impacting new homebuilders in the US,” Raymond James analysts wrote in a note. “Every part of the [NAHB index] was lower in September than in August. The regional picture was also very weak, according to the report.”
Market response: The yield on the 10-year government bond BX:TMUBMUSD10Y was more than 4.3% on Monday morning.
SPDR S&P Homebuilders exchange-traded fund XHB traded higher in the morning session. Shares of major housebuilders such as DR Horton DHI,
and Lennar LEN,