Homebuilder sentiment that sagged in recent months has rebounded on the strength of lower mortgage rates, but the housing market still faces challenges, a trade group said.
Builder confidence in the market for single-family homes rose to 41 in September from a reading of 39 in August, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Tuesday. The increase comes after four months of declines.
Despite the bounce back, NAHB Chairman Carl Harris said lower rates aren't a panacea. "The cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions," he said in a statement.
Harris also cautioned that builders need to be ready for competition from more existing homes for sale due to the lower mortgage rates.
The 30-year, fixed-rate mortgage averaged 6.20% last week, according to mortgage giant Freddie Mac. It’s the sixth consecutive week that rates have averaged below 6.5%. The Federal Reserve is expected to announce an interest rate cut this week in a move that could affect mortgage rates.
Results from the builder survey in early September showed slightly less reliance on price cuts and sales incentives.
Incentives use falls
The survey indicated 32% of respondents cut prices in September, a slight drop from the previous month. The average price reduction was 5%, the first time it has fallen below 6% since July 2022, NAHB said.
The use of sales incentives, such as mortgage rate buy-downs, fell to 61% in September from 64% in August. In a buy-down, builders take profits from sales to lower interest rates and buyers' monthly payments.
Large, publicly held homebuilders are mostly optimistic about single-family home sales, reporting in recent weeks that earnings and new orders are up. But nearly all those builders also indicated they are relying on incentives to boost sales.
Meanwhile, a separate survey by BTIG/HomeSphere of small- and mid-size homebuilders in August also revealed more interest from buyers, but the uptick was modest.
In responding to that survey, one unidentified Oklahoma homebuilder said some consumers appear to be waiting for conditions to improve further before jumping into the market.
"Not likely to see major changes in traffic and demand until after the election and at least one or two Fed rate drops," the builder said.
