NAHB housing market index fell to 50 in August (consensus 56) from 56 in July which was the highest reading and second time that sentiment levels have surpassed the midpoint of 50 since July 2022. Mortage rates are nearing 7% (per Freddie Mac). Much chatter this morning has been about Berkshire Hathaway (Warren Buffett) disclosing new positions in Lennar (LEN), D.R. Horton (DHI), and NVR (NVR in their 13F filing last night. Accordingly, the miss comes at an interesting time. December was the lowest level since mid-2012 with the exception of the spring of 2020. Builder sentiment had declined every month in 2022.
Inflation, though softer, is still striking out affordability for many. However, confidence had been rising with a lack of resale inventory despite elevated interest rates. There is underlying strong demand for new construction driven by the limited housing supply. Location is critical and rent plays a part. Redfin reported in April that U.S. rents saw the first annual slump since the pandemic hit in March 2020.
US NAHB home builder sentiment August 2023
- NAHB HMI 50 vs 56 expected Prior was 55
- Current single-family home sales 57 versus 61 in July
- Home sales over next 6 months 55 versus 62 in July
- Index of prospective buyers 34 versus in 40 in July
“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many homeowners elect to stay put because they are locked in at a low mortgage rate.”
Regional HMI Scores
Looking at the three-month moving averages for regional HMI scores,
- Northeast edged up 4 points to 56,
- Midwest unchanged at 45,
- South unchanged at 58
- West down 1-point gain to 50.
Share of builders reducing home prices stop trending down:
- The August HMI survey also revealed that rising mortgage rates are causing more builders to use sales incentives to attract home buyers.
- After dropping steadily for four months (from 31% in March to 22% in July), the share of builders cutting prices to bolster sales rose again to 25% in August.
- The average decline for builders reducing prices remained at 6%.
- The share of builders using incentives to bolster sales was 55% in August, higher than in July (52%) but still lower than in December 2022 (62%).
Given that shelter inflation accounts for roughly 40% of the Consumer Price Index, Dietz added: “Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%,” said NAHB Chief Economist Robert Dietz. “The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units.””
Home Builder Earnings Reports:
About National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)
Based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
From The TradersCommunity News Desk