by Builders continue to cut costs to make homes at lower and middle price points more attractive to buyers
WASHINGTON — Despite indications that new homes have sharpened price points in recent months, affordability and rising costs remain a concern, according to the latest builder confidence survey.
The National Association of Home Builders/Wells Fargo Housing Market Index showed that the builder confidence level for new single-family homes fell two points to 37 this month.
“While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors,” said NAHB Chairman Buddy Hughes, a homebuilder and developer from Lexington, North Carolina. “Buyers are concerned about high home prices and mortgage rates, with down payments particularly challenging given elevated price-to-income ratios.”
The concerns are in spite of builders continuing to cut costs on new homes. According to the survey, 40% of builders said they cut prices in January. While this was unchanged from December, it was the third consecutive month that it has been at 40% or higher since May of 2020.
The report noted that the average price reduction was 6% in January, up from 5% in December, while 65% reported using incentives in January, or the 10th consecutive month it has been above 60%.
In addition, the index reported that sentiment about future sales was below 50 for the first time since September.
In a further sign of ongoing challenges for the housing market, the latest HMI survey also revealed that 40% of builders reported cutting prices in January, unchanged from December but the third consecutive month the share has been at 40% or higher since May 2020. Meanwhile, the average price reduction was 6% in January, up from the 5% rate in December.
Other indicators also fell in January, including the HMI index gauging current sales conditions which declined one point to 41; the gauge charting traffic of prospective buyers, which dropped three points to 23; and the index measuring future sales, which fell three points to 49. This was the first time this component fell below the breakeven point of 50 since September, NAHB noted.
According to NAHB chief economist Robert Dietz, this indicates that “builders continue to face several issues that include labor and lot shortages as well as elevated regulatory and material costs.
By region, the activity was as follows:
+ The Northeast fell two points to 45.
+ The Midwest was level at 43.
+ The South dropped one point to 35.
+ The West gained one point to 35.
There were bright spots, however, including a reduction in lending costs. Citing Freddie Mac, the report noted that the average mortgage rate as of Jan. 15 fell to 6.06.
“This was the lowest rate in three years and nearly 100 basis points below the same period last year,” Dietz said.
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.” It also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”
Scores for each component help calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at Housing Economics PLUS.
