Confidence among U.S. homebuilders declined for the second consecutive month, reaching the lowest level of 2023. The National Association of Home Builders (NAHB) and Wells Fargo reported that their market conditions index fell 2 points to 34 in July, as elevated borrowing costs and rising material prices continue to challenge the industry. Economists had anticipated a slightly higher reading of 35.
Key Details
This index has remained below 40 for 15 straight months, marking the longest stretch since 2012. NAHB chief economist Robert Dietz noted,
Affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market.
Additional data revealed that contract signings for previously owned homes dropped 5.4% to 72.5 in June, according to the National Association of Realtors. This decline exceeded economists' expectations of a 0.5% decrease. The drop in builder sentiment reflects ongoing hurdles, including sustained mortgage rates above 6%, geopolitical tensions, and uncertainty regarding tariffs and employment.
Background
The sentiment index, which includes components for present sales, future sales, and buyer traffic, showed declines across all areas in July. Builders are increasingly offering sales incentives to attract buyers, with 63% reporting using such tactics this month, up from 62% in June. Additionally, 37% indicated they had cut prices, compared to 35% the previous month.
Related coverage: Pending US home sales drop 5.4% in June amid affordability.
The decline in builder sentiment is likely to weigh on the housing market, particularly affecting new home sales and related sectors such as construction and materials. Investors will watch for upcoming economic indicators that could provide further insight into housing demand and mortgage rates.