Home builder confidence fell in August as mortgage rates neared 7 percent, according to this month’s National Association of Home Builders/Wells Fargo Housing Market Index.
The drop came after seven straight months of steadily rising sentiments. Builder confidence in the market for new, single-family homes fell six points this month to 50. The three major Housing Market Indices all fell this month: The index gauging current sales conditions dropped five points to 57; the index charting sales expectations in the next six months fell four points to 55; and the gauge measuring traffic of prospective buyers dropped six points to 34.
“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” added NAHB Chair Alicia Huey, a Birmingham, Ala.-based custom home builder and developer. “But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many homeowners elect to stay put because they are locked in at a low mortgage rate.”
Shelter inflation increased 7.7 percent from a year ago and accounted for 90 percent of July’s Consumer Price Index reading of 3.2 percent, added NAHB Chief Economist Robert Dietz. “The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units,” he added.
According to the survey, rising mortgage rates are causing more builders to use sales incentives to attract homebuyers. The share of builders reducing prices to increase sales rose to 25 percent this month, up from 22 percent in July but down from 31 percent in March. The share of builders using incentives to increase sales was 55 percent in August, a three-percent rise from last month but still lower than December’s 62 percent.