Key Takeaways:
– Builder confidence in the market for newly built single-family homes has fallen for the fourth consecutive month.
– The decline in builder confidence can be attributed to the rise in mortgage rates, which reached 8 percent in October.
– Experts suggest that better conditions for builders may be on the horizon, as recent macroeconomic data indicates a potential recovery.
– The forecast for single-family home starts in 2024 is an increase of approximately 5 percent.
– Currently, mortgage rates have remained above 7 percent since August, leading some builders to cut home prices and offer concessions.
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Builder confidence was hammered by still-higher mortgage rates during October, but experts say better conditions for builders could be within sight.
As mortgage rates approached 8 percent during October, builder confidence in the market for newly built single-family homes fell six points to a measure of 34 — the fourth consecutive monthly drop in builder confidence, according to data released Thursday by the National Association of Home Builders.
Sentiment levels have declined 22 points since July and are at their lowest levels since December 2022, according to the NAHB. At 34, builder sentiment remains overwhelmingly negative, with any score below 50 considered negative.
“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” NAHB Chairman Alicia Huey said in a statement. “Moreover, higher short-term interest rates have increased the cost of financing for home builders and land developers, adding another headwind for housing supply in a market low on resale inventory.”
However, experts pointed to recent macroeconomic data that suggests a recovery could be on the way, such as the 10-year Treasury rate which moved to the 4.5 percent rate following the publishing of Tuesday’s inflation report. This could, in part, bring mortgage rates down to close to or below 7.5 percent.
While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” NAHB Chief Economist Robert Dietz said in a statement. “Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”
NAHB forecasted an increase of approximately 5 percent for single-family home starts in 2024 as easing inflation creates better economic conditions for building homes.
As of now, mortgage rates have remained above 7 percent since August and 36 percent of respondents to NAHB’s October survey reported cutting home prices, up from 32 percent the previous month. The average price reduction in November remained at 6 percent, while 60 percent of builders reported offering concessions of any kind, down slightly from the 62 percent reported in October.
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Property Chomp's Take:
The housing market has been hit hard by rising mortgage rates, with builder confidence dropping for the fourth consecutive month. According to data released by the National Association of Home Builders (NAHB), builder confidence in the market for newly built single-family homes fell six points to a measure of 34 in October.
The rise in interest rates, which approached 8 percent during October, has made the market less affordable for prospective buyers. This has led to a decrease in demand and has dampened builder views of market conditions. Higher short-term interest rates have also increased the cost of financing for home builders and land developers, adding to the challenges faced by the industry.
However, there is hope on the horizon. Recent macroeconomic data suggests that better conditions for builders could be within sight. The 10-year Treasury rate has moved to a 4.5 percent rate, which could bring mortgage rates down to close to or below 7.5 percent. This could help to stimulate housing demand and improve builder views of market conditions.
NAHB Chief Economist Robert Dietz believes that recent macroeconomic data point to improving conditions for home construction in the coming months. Given the lack of existing home inventory, somewhat lower mortgage rates are expected to drive housing demand and set the stage for improved builder sentiment in December.
The NAHB also forecasted an increase of approximately 5 percent for single-family home starts in 2024, as easing inflation creates better economic conditions for building homes.
Despite these positive indicators, mortgage rates have remained above 7 percent since August. In response, 36 percent of builders reported cutting home prices, up from 32 percent the previous month. The average price reduction in November remained at 6 percent, while 60 percent of builders reported offering concessions of any kind.
In conclusion, while builder confidence has taken a hit due to rising mortgage rates, there is optimism that better conditions for builders could be on the horizon. Recent macroeconomic data and the potential for lower mortgage rates suggest that the housing market may see a recovery in the coming months. Builders are hopeful that this will lead to increased demand and improved market conditions for the industry.
