Affordability issues and buyer hesitation due to high interest rates and elevated home prices led to a drop in builder sentiment in August. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly-built single-family homes fell to 39 in August, a two-point decrease from the revised July figure of 41. This marks the lowest confidence level since December 2023.
“Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”
Almost three-quarters of the responses to the August HMI were collected during the first week of the month when interest rates averaged 6.73%, according to Freddie Mac. Mortgage rates declined notably the following week to 6.47%, the lowest reading since May 2023.
“With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,” said NAHB Chief Economist Robert Dietz.
The August HMI survey showed that 33% of builders reduced home prices to boost sales in August, up from 31% in July, marking the highest percentage of 2024. Despite this, the average price reduction remained consistent at 6% for the 14th consecutive month. Additionally, the use of sales incentives rose to 64% in August, up from 61% in July, reaching its highest level since April 2019.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate the traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The HMI index charting current sales conditions in August fell two points to 44 and the gauge charting traffic of prospective buyers also declined by two points to 25. The component measuring sales expectations in the next six months increased one point to 49.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell four points to 52, the Midwest dropped four points to 39, the South decreased two points to 42 and the West held steady at 37.
HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at Housing Economics PLUS.
ABOUT NAHB: The National Association of Home Builders is a Washington-based trade association representing more than 140,000 members involved in home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction. NAHB is affiliated with 700 state and local home builders associations around the country. NAHB’s builder members will construct about 80% of the new housing units projected for this year.
