High mortgage rates, building costs continue to stifle confidence

Mortgage rates remaining in the 7 percent range along with high construction costs continued to limit builder sentiment this month, according to the National Association of Home Builders/Wells Fargo Housing Market Index. 

Mortgage rates fell for the third straight week for the week of June 20, according to Freddie Mac, amid signs of falling inflation and expectations of a future Fed rate cut. A 30-year fixed rate mortgage was listed at 6.87 percent, while the 15-year fixed rate was 6.13 percent. “These lower mortgage rates coupled with the gradually improving building supply bodes well for the housing market,” according to Freddie Mac.

All three components of the Housing Market Index fell to below 50, indicating that more builders see conditions as poor than good. The index charting current sales conditions fell three points to 48, while the component tracking sales expectations in the next six months fell four points to 47. The gauge tracking traffic of prospective buyers fell two points to 28. Builder confidence in the single-family home market was 43 this month, down two points from May and its lowest reading in seven months. 

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” said NAHB Chair Carl Harris. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

NAHB Chief Economist Robert Dietz noted shelter inflation, which increased this month at a 5.4 percent annual clip, is making it harder for the Federal Reserve to reduce inflation to its target 2 percent. “The best way to bring down shelter inflation and push the overall inflation rate down to the 2 percent range is to increase the nation’s housing supply,” Dietz noted. “A more favorable interest rate environment for construction and development loans would help to achieve this aim.” 

According to the Census Bureau, there were 1.386 million private housing units authorized by building permits last month, down 3.8 percent from 1.440 million and 9.5 percent under the May 2023 rate of 1.532 million. There were 1.514 million privately-owned housing completions last month, down 8.4 percent from 1.652 million in May. 

Other report findings included:  

  • There were 1.027 million single-family housing completions, down 8.5 percent below 1.122 million in April.  
  • There were 949,000 single-family authorizations in May, according to the Census Bureau, 3 percent under the 977,000 authorized in April.
  • There were 1.277 million privately-owned housing starts last month, 5.5 percent under 1.352 million in April and 19.3 percent below 1.583 million in May 2023.