Homebuilder sentiment plunges again amid spike in mortgage rates
Builder confidence unexpectedly drops for second consecutive month
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Confidence among builders in the U.S. housing market unexpectedly plunged in September for the second straight month as a spike in mortgage rates continued to weigh on consumer demand for new homes.
The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell five points to 45, the lowest reading since April 2023. The decline followed a six-point drop in August.
Any reading below 50 is considered negative.
"High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower," said Robert Dietz, chief economist at NAHB.
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Homes under construction in Sacramento, California, on July 3, 2023. (David Paul Morris/Bloomberg via / Getty Images)
Sentiment among builders had been steadily rising earlier this year as limited resale inventory pushed would-be buyers to seek out new construction instead. But when mortgage rates shot above 7% in September, it throttled demand among would-be homebuyers.
Rates are expected to remain elevated, as the Federal Reserve has hinted that it may hold interest rates at peak levels for longer than previously anticipated.
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Rates on the popular 30-year fixed mortgage are currently hovering around 7.18%, according to Freddie Mac, well above the 6.02% rate recorded one year ago and the pre-pandemic average of 3.9%. It is near the highest level in two decades.
Homes in Centreville, Maryland, on April 4, 2023. (Nathan Howard/Bloomberg via / Getty Images)
"The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power," said NAHB Chair Alicia Huey, a custom home builder and developer from Birmingham, Alabama. "And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes."
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Higher rates are also prompting more builders to use sales incentives in order to woo buyers: About 59% of builders indicated they are using all types of incentives, including buying down interest rates.
Sentiment fell across the board in all four regions in the U.S.