Homebuilder confidence in August hit a new low for the year, pressured by high mortgage rates and borrowing costs.
Confidence among America’s homebuilders slumped in August to its lowest point of the year, as high interest rates keep mortgage rates and borrowing costs elevated, pressuring both customers and those in the construction industry.
A measure of present sales slumped two points in August, to a reading of 44, with a NAHB survey revealing that 33 percent of builders cut home prices to boost sales in August, marking the highest share of discounted homes so far this year.
Prospective-buyer traffic also fell to a new 2024 low in August, declining by two points, to 25.
On an optimistic note, sales expectations in the next six months ticked up one point, to 49, possibly as markets anticipate that the Federal Reserve will cut interest rates.
“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,” NAHB chief economist Robert Dietz said in a statement.
Freddie Mac said that during the week of Aug. 8, mortgage rates hit their lowest level in more than a year, citing weak labor market data as a catalyst.
Despite the fact that mortgage rates have been holding below the 7 percent mark, housing prices continue to rise, putting pressure on prospective homebuyers.
“It’s terrific news for homeowners who are moving ahead in wealth gains,” NAR chief economist Lawrence Yun said in a statement. “However, it’s difficult for those wanting to buy a home as the required income to qualify has roughly doubled from just a few years ago.”
Besides higher prices, first-time buyers also had to contend with limited inventory in the second quarter, according to the NAR, which predicted that housing affordability would improve in coming months as more supply reaches the market.
NAHB chairman Carl Harris, a custom homebuilder from Kansas, said that prospective homebuyers in August reported challenging housing affordability conditions as their top concern.
“The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing,” he said.
Elevated housing costs are also proving to be one of the most persistent factors that are keeping inflation elevated.