Mortgage Rate

Homebuilder Sentiment Hits One-Year Low Amidst Mortgage Rate Struggles

In a concerning trend for the housing market, homebuilder sentiment has dropped to its lowest point in a year, registering at 34 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for November. This marks the fourth consecutive month of declines, with sentiment down 22 points since July and now at the lowest level since the end of the previous year.

The decline is attributed to the persistent impact of high mortgage rates, prompting builders to resort to price cuts in an effort to entice hesitant buyers. NAHB Chair Alicia Huey expressed concern over the rise in interest rates since August, stating that it has dampened builder views on market conditions, with many prospective buyers being priced out of the market.

Despite the gloomy outlook, builders find a glimmer of hope in recent signs that interest rates may soon decrease. The HMI report notes that nearly all November data was collected before the release of the consumer price index, which showed a moderation in inflation.

While the index’s three components—current sales conditions, sales expectations in the next six months, and buyer traffic—all experienced declines, builders are cautiously optimistic. NAHB’s chief economist, Robert Dietz, points to improving macroeconomic conditions, particularly the 10-year Treasury rate returning to the 4.5% range. This, he believes, will help bring mortgage rates close to or below 7.5%, potentially boosting housing demand and improving builder views of market conditions in December.

Amidst the challenging landscape, more builders are resorting to price cuts, with 36% reporting such measures in November, the highest share in this cycle. NAHB forecasts a roughly 5% increase in single-family starts in 2024, anticipating improved financial conditions with easing inflation data in the months ahead.

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