According to Freddie Mac, mortgage rates averaged 6.92% in June, with interest rates on construction and development loans also rising, continuing to negatively impact homebuilder sentiment.
Builder confidence in the new single-family home market fell 1 percentage point from June to 42 in July, the lowest since December 2023, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
While buyers appear to be waiting for interest rates to fall, homebuilders' six-month sales forecasts are rising, indicating that homebuilders expect mortgage rates to fall moderately later this year as inflation data shows signs of easing.
While inflation remains above the Federal Reserve's 2% target, it appears to be trending down again after a first-quarter increase. NAHB expects the Federal Reserve to begin cutting interest rates at the end of the year, a move that will lower interest rates for homebuyers, builders and developers. Although housing inventory is increasing, the overall market is short at 4.4 months, indicating a need for more homebuilding in the long term.
The July HMI survey also revealed that 31% of homebuilders reduced home prices in July to encourage sales, up from 29% in June. However, the average price reduction remained steady at 6% in July for the 13th consecutive month. Meanwhile, the use of sales incentives remained steady at 61% in July, the same as in June.
Derived from monthly surveys conducted by NAHB for over 35 years, the NAHB/Wells Fargo HMI rates homebuilders' perceptions of current single-family home sales conditions and sales prospects for the next six months as good, fair, or poor. The survey asks homebuilders to rate the inflow of potential buyers as high to very high, average, or poor to very poor. The scores for each component are used to calculate a seasonally adjusted index. A number above 50 indicates that more homebuilders consider the situation good than poor.
The HMI index, which measures current sales conditions, fell one point to 47 in July, while a gauge showing how likely buyers are to visit stores also fell one point to 27. A factor measuring sales expectations over the next six months rose one point to 48.
Looking at the three-month rolling average of regional HMI scores, the Northeast fell six points to 56, the Midwest fell four points to 43, the South fell two points to 44, and the West fell four points to 37. The HMI table is available at nahb.org/hmi.
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