In a significant shift for the US housing market, builder confidence has shown improvement in September after a prolonged period of decline. According to the data released by the National Association of Home Builders (NAHB) and Wells Fargo, this is the first time in five months that homebuilder sentiment has increased, with the housing market index registering a rise from 39 in August to 41 this month.
This uptick in builder confidence aligns with the broader market consensus, as highlighted in recent surveys conducted by Bloomberg, breaking a streak of four consecutive months of decreasing confidence. The rise in the housing market index is indicative of changing sentiments among builders regarding the new single-family home market.
Specifically, the index that assesses current sales conditions saw an increase of one point, reaching 45. More notably, expectations regarding future sales over the next six months gained traction, climbing by four points to hit 53. Additionally, the index that measures the traffic of potential homebuyers rose by two points to 27, reinforcing the notion of a budding recovery in market activity. NAHB Chairman Carl Harris attributed this renewed optimism to the recent decline in mortgage rates, stating, "Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May." However, Harris cautioned that elevated construction costs compared to household budgets are still dampening enthusiasm regarding the current housing conditions, suggesting that while optimism is returning, there are still hurdles to overcome. Freddie Mac's data corroborates the trend seen by builders, indicating that mortgage rates have fallen by more than half a percentage point from early August through mid-September.
This decline can be largely attributed to moderating inflation, which is prompting expectations of changes in the Federal Reserve's monetary policy. According to NAHB Chief Economist Robert Dietz, the upcoming Federal Reserve meeting is poised to discuss interest rate adjustments. Dietz highlighted that lower interest rates could apply downward pressure on mortgage rates and also on the interest rates associated with land development and home construction loans. The Federal Reserve's monetary policy-setting committee began its crucial meeting on Tuesday, with an important decision on interest rates anticipated by Wednesday.
Current indicators suggest a 63% likelihood that the central bank will reduce rates by 50 basis points, while the remaining odds favor a 25-basis-point reduction, according to analysis from the CME FedWatch tool. As the landscape evolves, it is notable that in September, 32% of homebuilders chose to cut home prices to stimulate sales, a slight decrease from August's figure of 33%.
The average price reduction now stands at 5%, representing a decline below 6% for the first time since July 2022. Furthermore, the proportion of builders offering sales incentives also fell from 64% in August to 61% in September, indicating a potential confidence shift in the market's stability and future growth prospects..