Homebuilder sentiment goes negative for the first time in 7 months, thanks to higher mortgage rates

U.S. homebuilders are feeling pessimistic about their business for the first time in seven months, thanks to stubbornly high mortgage rates.

Builder confidence in the single-family housing market fell 5 points in September to 45 on the National Association of Home Builders/Wells Fargo Housing Market Index. The decrease follows a 6-point drop in August. Anything below 50 is considered negative.

The index’s three components all declined. Current sales conditions fell 6 points to 51, and sales expectations in the next six months also dropped 6 points to 49. Buyer traffic decreased 5 points to 30.

Builders cite weaker affordability due to higher mortgage rates. The average rate on the popular 30-year fixed mortgage has been over 7% since June.

As a result, builders are starting to offer more incentives again. In September, 32% of builders said they cut prices, compared with 25% in August. That’s the largest share of builders reducing prices since December 2022, when 35% were doing so.

The average price cut was 6%.

“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” said Robert Dietz, NAHB’s chief economist, in a release.

A shift is also occurring among those buyers who are still in the market. The NAHB added a new question to this month’s survey and found that 42% of new single-family home buyers year to date were first-time buyers. That is much higher than the historical norm of around 27%.

While builders are still benefiting from the lack of supply on the existing sales market, they are also facing hurdles other than higher interest rates.

“On the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes. Insurance cost and availability is also a growing concern for the housing sector,” said NAHB Chairman Alicia Huey, a homebuilder and developer from Birmingham, Alabama.

Regionally, on a three-month moving average, sentiment in the Northeast fell 2 points to 54. In the Midwest it dropped 3 points to 42.

In the South it declined 4 points to 54, and in the West it decreased 3 points to 47.