Builder sentiment declined this month amid a lack of affordability and buyer hesitation caused by high interest rates and home prices, according to the National Association of Homebuilders/Wells Fargo Housing Market Index survey.
The index charting new single-family homes was 39 in August, down from 41 in July and its lowest reading since December 2023. The index charting current sales conditions fell two points to 44 in August, and the gauge charting traffic of prospective buyers also fell two points to 25. The component measuring sales expectations for the next six months increased one point to 49.
“Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness,” said NAHB Chair Carl Harris. “The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”
One-third of builders cut home prices to increase sales in August, above the July rate of 31 percent and its highest share so far this year. The average price reduction in August remained at 6 percent for the 14th straight month. The use of sales incentives increased to 64 percent this month from 61 percent in July, its highest mark since the spring of 2019.
A majority of survey responses were collected during the first week of August when interest rates averaged 6.73 percent, according to Freddie Mac. Mortgage rates fell to 6.47 percent the following week.
“With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,” said NAHB Chief Economist Robert Dietz.
According to the U.S. Census Bureau, there were 1.396 million private housing units authorized by building permits last month, down 4 percent from 1.454 million in June and 7 percent below its July 2023 rate of 1.501 million.
There were 1.529 million private housing completions in July, down nearly 10 percent from 1.696 million in June but nearly 14 percent higher than 1.343 million in July 2023. According to the Census Bureau, the number of single-family housing completions increased a half-percent to 1.054 million from 1.049 million in June.
Other report findings included:
- There were 938,000 single-family authorizations in July, little changed from the 939,000 authorized in June. There were 408,000 authorizations of units in buildings with five units or more.
- There were 1.238 million private housing starts in July, down nearly 7 percent from 1.329 million in June and 16 percent below 1.473 million in July 2023. According to the Census Bureau, the number of single-family housing starts fell 8.3 percent to 851,000 from 991,000 in June.
