Builder sentiment falls again, but lower inflation a cause for optimism

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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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