by Affordability remains a key concern, a factor that also will impact what consumers are willing to spend on furniture
WASHINGTON — Builder confidence relating to the market for newly built homes fell again in August, marking the 16th consecutive month the reading has been in negative territory, according to the National Association of Home Builders.
The NAHB/Wells Fargo Housing Market Index report said builder confidence fell to 32 from 33 since May. While not a big decrease, the association said the reading has hovered between 32 and 35 since May. A reading of 50 or higher indicates that more builders view conditions as good versus poor while a reading lower than 50 indicates that more builders view conditions as poor versus good.
The association attributed the ongoing malaise to a host of factors that are also of concern to the furniture industry, ranging from elevated mortgage rates to weak buyer traffic. This has dragged down both existing home sales and new home sales, both of which are closely tied to furniture store sales as people often need new furniture to decorate their new homes based on different floor plans.
The confidence levels also remain low because of supply side challenges, the NAHB noted. This issue was recently addressed in a study Home News Now published stating that tariffs are expected to significantly impact construction costs.
In response to the soft housing market, builders continue to reduce prices, with some 37% surveyed reporting cutting prices in August, down from 38% in July. The average price reduction was 5%, level with each month since November.
Meanwhile, the use of sales incentives was 66% in August, up from 62% in July. It also was the highest percentage post-Covid, while the share of builders cutting prices has remained at 37% and 38% over the past three months.
The cutting of prices mixed with the use of sales incentives addresses affordability, one of the key issues impacting home sales for buyers across the age and income spectrum, particularly as interest rates remain above 6%.
“Affordability continues to be the top challenge for the housing market, and buyers are waiting for mortgage rates to drop to move forward,” said NAHB Chairman Buddy Hughes, a homebuilder and developer from Lexington, North Carolina. “Builders are also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes.”
“Housing affordability is central to the outlook for economic growth and inflation,” added NAHB Chief Economist Robert Dietz. “Given a slowing housing market and other recent economic data, the Fed’s monetary policy committee should return to lowering the federal funds rate, which will reduce financing costs for housing construction and indirectly help mortgage interest rates.”
Other highlights of the report were as follows:
+ The HMI index gauging current sales conditions fell one point in August to 35.
+ The component measuring sales expectations in the next six months remained level at 43.
+ The gauge on traffic of prospective buyers rose two points to 22.
+ Three-month averages for each region showed the Northeast fell one point to 44; the Midwest rose one point to 42; the South fell one point to 29; and the West fell one point to 24.
For furniture retailers, the survey offers a window in the market for new homes and what builders are doing to spur home sales. As price reductions and the use of incentives continues, it’s clear that such measures are necessary for cash-strapped consumers. Thus, retailers are wise to continue offering the best pricing and values they can in their respective markets.
Tariffs undoubtedly will throw a wrench into that, which is why we continue to hear that so many retailers are balking at paying any portion of the increase. Unfortunately, many of these costs will have to be passed along for suppliers to remain solvent.
Thus, in an environment where consumers continue to be price conscious, whether in buying a new home or new furniture, the timing of these tariffs couldn’t be worse. Obviously, the consumers’ hard-earned dollar will only stretch so far.
