U.S. Builder Confidence Declines in August due to affordability challenge

In August 2024, U.S. builder sentiment decreased due to ongoing affordability challenges and buyer reluctance driven by high interest rates and elevated home prices. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) recorded builder confidence for newly constructed single-family homes at 39, a two-point decline from the revised July figure of 41. This marks the lowest confidence level since December 2023.

Almost three-quarters of the August HMI responses were gathered during the first week of the month when interest rates averaged 6.73%, according to Freddie Mac. Rates later fell to 6.47% in the following week, the lowest since May 2023.

"Challenging housing affordability remains the primary concern for potential homebuyers, as reflected in the current HMI reading, with both present sales and traffic indicators showing weakness," said NAHB Chairman Carl Harris. "The only long-term solution to curbing high housing costs is to adopt policies that enable builders to create more attainable, affordable homes."

The August HMI survey also revealed that 33% of builders reduced home prices to stimulate sales, up from 31% in July, marking the highest percentage in 2024. Despite this, the average price reduction remained steady at 6% for the 14th consecutive month. Additionally, the use of sales incentives increased to 64% in August, compared to 61% in July, the highest since April 2019.

"With recent inflation data suggesting potential interest rate cuts from the Federal Reserve and mortgage rates significantly lower in the second week of August, we expect buyer interest and builder sentiment to improve in the coming months," said NAHB Chief Economist Robert Dietz.

The NAHB/Wells Fargo HMI, based on over 35 years of monthly surveys, gauges builder perceptions of current single-family home sales and future sales expectations, rating them as "good," "fair," or "poor." Builders also assess prospective buyer traffic as "high to very high," "average," or "low to very low." These responses are then used to generate a seasonally adjusted index, where values above 50 indicate that more builders view conditions as favorable rather than poor.

In August, the index for current sales conditions dropped by two points to 44, while the measure for prospective buyer traffic fell by two points to 25. However, the component tracking sales expectations for the next six months rose by one point to 49.

Examining the three-month moving averages for regional HMI scores, the Northeast decreased by four points to 52, the Midwest by four points to 39, the South by two points to 42, and the West remained unchanged at 37.