by Reading has been between 32 and 34 since May, falling well below a level that shows more builders view conditions as good versus poor
WASHINGTON — Homebuilder sentiment remained unchanged in September, as the industry awaited news of a pending reduction in interest rates, which took place Wednesday, Sept. 17.
The National Association of Home Builders/Wells Fargo Housing Market Index, released a day earlier, noted that builder confidence for newly built single-family homes in September was at 32, unchanged from August.
The index has been between 32 and 34 since May, falling well below a reading over 50. A reading over 50 indicates that most builders feel confident about the current and near-term outlook for housing.
However, the feeling is that housing costs will lower with the quarter-point reduction, which officials said comes on top of interest rate reductions in recent weeks. That in turn, they said, should “bring hesitant buyers off the sidelines” in the final quarter of this year.
“While builders continue to contend with rising construction costs, a recent drop in mortgage interest rates over the past month should help spur housing demand,” said NAHB Chairman Buddy Hughes, a homebuilder and developer from Lexington, North Carolina.
NAHB Chief Economist Robert Dietz noted that as of Sept. 16, the 30-year, fixed rate mortgage rate was down 23 basis points to 6.35%, adding that this is the lowest level since mid-October of last year “and a positive sign for future housing demand.”
Other highlights of the latest HMI are as follows:
+ Thirty-nine percent of builders said they cut prices in September, up from 37% in August and the highest level post Covid.
+ The average price reduction was 5% in September, the same as each month since November, the NAHB said.
+ Sixty-five percent of homebuilders reported using incentives to spur sales this month, down slightly from 66% in August.
+ The HMI index gauging future sales expectations rose two points in September to 45, which NAHB said is the highest reading since March of this year.
+ The component measuring current sales conditions was level at 34, while the gauge charting traffic of prospective buyers posted a one-point decline to 21.
Based on a three-month moving average for regional HMI scores the activity by region was as follows:
+ The Northeast was unchanged at 44.
+ The Midwest rose one point to 42.
+ The South remained at 29.
+ The West rose one point to 26.
What this means for retailers depends partly on the level of housing activity — both new construction and existing home sales — in their respective regions. Many retailers we have spoken with of late have pointed to new construction and home sales as a sign of vibrancy not only for their respective local and regional economies, but also for furniture sales. Thus it’s key for these businesses to not only stay tuned to what’s happening in the local marketplace but also to tailor their marketing activities toward new homeowners.
But as the NAHB notes, there are a number of economic factors that will guide residential development in single and multifamily housing projects.
Interest rates are an obvious factor and all eyes will be on whether the Fed continues to lower rates between now and year end as expected. As the NAHB notes, the homebuilding industry is also impacted as elevated rates impact the cost of borrowing for builders, including their ability to secure construction loans.
The NAHB also notes that employment rates are another factor impacting the HMI. “When the economy is strong and more people are employed, the housing market tends to be more robust,” NAHB said. “This is because stable employment provides the income security needed to qualify for and afford a mortgage. However, when the pace of economic growth is slow and unemployment rates are high, it can lead to decreased demand in the housing market, resulting in a drop in the HMI.”
Inflationary pressures and the impact on materials costs also impact housing affordability. NAHB said builders “can typically anticipate when prices rise and fall with supply and demand.” However, it added that when anything impacts that, including a global pandemic that impacts the supply chain, “the uncertainty can lead to diminishing builder confidence.”
Furniture sales, which have held up at retail by and large since last September based on year-over-year sales activity, will depend on a mix of factors, including consumer confidence, builder confidence, interest rates and overall housing affordability.
For the industry’s sake, we hope the stars continue to align in all these areas. But for certain, a drop in interest rates that appears to be gaining momentum, is indeed a good place to start.
