June saw a decline in builder confidence for new single-family homes as mortgage rates persist around 7%, coupled with higher construction financing costs, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
The June HMI dropped to 43, a two-point decrease from May, marking the lowest confidence level since December 2023.
“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages, and a dearth of buildable lots.”
NAHB Chief Economist Robert Dietz commented on the broader economic implications: “We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%. Increasing the nation’s housing supply is essential to bringing down shelter inflation and achieving a 2% overall inflation rate. A more favorable interest rate environment for construction and development loans would help achieve this aim.”
June also saw 29% of builders reduce home prices to stimulate sales, the highest percentage since January 2024 and significantly higher than May's 25%. The average price reduction remained at 6% for the twelfth consecutive month. Sales incentives rose to 61% in June from 59% in May, reaching the highest level since January 2024.
The NAHB/Wells Fargo HMI is based on a monthly survey conducted for over 35 years, assessing builder perceptions of current single-family home sales, sales expectations for the next six months, and prospective buyer traffic. Scores above 50 indicate positive sentiment.
In June, all three HMI components posted declines. The index for current sales conditions dropped to 48, sales expectations for the next six months fell to 47, and prospective buyer traffic decreased to 28.
Regional HMI scores over a three-month moving average showed mixed results: the Northeast remained steady at 62, the Midwest dropped to 47, the South decreased to 46, and the West fell to 41.
This HMI report highlights the ongoing challenges in the home-building industry, influenced by high mortgage rates and construction costs, and underscores the need for a more favorable economic environment to boost builder confidence and housing supply.