Builder confidence in the market for new single-family homes improved last month as mortgage rates fell by more than half of a percentage point in recent weeks, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
The index tracking current sales conditions increased one point to 45, while the component measuring sales expectations in the next six months increased four points to 53. The measurement of prospective buyer traffic increased two points to 27. Any number over 50 shows more builders view conditions as good than poor.
NAHB Chair Carl Harris said builders have a positive view of future new home sales for the first time in four months. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions,” he said. “Moreover, builders will face competition from rising existing home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”
On Sept. 18, the Federal Open Market Committee lowered its federal funds rate by a half-percentage point to 4.75 to 5.00 percent. The FOMC also promised to continue reducing its holdings of Treasury securities and agency mortgage-backed securities. Eleven of 12 FOMC members approved the reduction, with Gov. Michelle Bowman the lone no vote. Bowman instead supported a quarter-percentage-point reduction.
NAHB Chief Economist Robert Dietz said the interest rate cut will continue placing downward pressure on mortgage interest rates while lowering interest rates on land development and home construction business loans. “Lowering the cost of construction is critical to confront persistent challenges for housing affordability,” Dietz added.
The share of builders reducing prices fell in September for the first time in five months, down one point to 32 percent. The average price reduction was 5 percent, its first time being below 6 percent since July 2022.
Single-family authorizations increased 2.8 percent in August to 967,000, according to the U.S. Department of Housing and Urban Development and Census Bureau. Privately-owned housing units greenlighted by building permits increased 5 percent in August to 1.47 million from 1.4 million in July.
Other August report findings included:
- Privately-owned housing starts increased 9.6 percent last month to 1.35 million from 1.23 million in July. Single-family housing starts increased 15.8 percent to 992,000 from 857,000 in July.
- Privately-owned housing completions increased 9.2 percent in August to 1.78 million from 1.63 million the previous month. August’s completion number was 30.2 percent higher than 12 months prior when 1.37 million homes were finished.
- Single-family housing completions fell 5.6 percent to 1.02 million from 1.09 million in July.
