Homebuilder sentiment took a hit in September, the byproduct of surging mortgage rates and material costs.
With summer drawing to a close, homebuilders are feeling discouraged as climbing mortgage rates are keeping buyers from making a move.
Builder confidence in new-home sales dropped three points month over month, decreasing the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) to 32 on Wednesday. Any reading below 50 reflects the industry's pessimistic view of the market.
This is the lowest HMI in a year. For context, builder sentiment has now remained below 40 for 17 consecutive months.
NAHB Chairman Bill Owens attributes the end-of-summer downturn to a combination of factors, with high borrowing costs emerging as the main culprit sidelining potential buyers.
Last week, Freddie Mac reported that the average rate on 30-year fixed home loans reached 6.76%, driven by oil shocks and inflation fears.
"Buyer traffic has weakened across much of the country, largely because of rising mortgage rates," says Owens. "Builders also continue to face higher material costs, rising gas and diesel prices and persistent labor shortages. In some markets, builders report that increased immigration enforcement is discouraging legal workers from reporting to job sites."
NAHB Chief Economist Robert Dietz adds that elevated land, labor, and construction costs together have exacerbated the situation, with 42% of builders rating current lot availability as "poor."
The latest data from the monthly HMI survey of single-family homebuilders showed that 38% of them cut prices in September, up from 36% in August. The average price cut remained at 6% for the sixth month in a row.
At the same time, 66% of builders reported using sales incentives, such as mortgage rate buydowns or closing cost discounts, in September, up from 63% in August and the highest share since 67% posted in December.
(Realtor.com) The index measuring current sales conditions retreated four points to 35, while the index gauging future sales expectations plunged six points to 37. On a more positive note, the index assessing prospective buyer traffic held steady at 23.
On a regional, three-month rolling average basis, the HMI index for the Midwest ticked down one point to 44, the Northeast dropped five points to 39, the South fell one point to 31, and the West posted a one-point gain to 28.