NAHB/Wells Fargo housing market index slump continues, falling for a fourth month by 6 points to 34 in November 2023, significantly below the market’s expected level of 40. The index is at its lowest point since December 2022. The fall has been swift as affordability has plummeted with high interest rates and inflation. Just back in July we saw the highest reading at 56 in this cycle and was just the second time that sentiment levels have surpassed the midpoint of 50 since July 2022. Mortgage rates since late September are up nearly 40 basis points to 7.61%, according to Freddie Mac.
Specifically, the sub-index for current single-family home sales plummeted by 6 points to 40, while the sub-index for expected home sales over the next six months also experienced a notable 5-point drop, landing at 39. Additionally, the gauge for prospective buyers dipped by 5 points to 21.
Inflation is striking out affordability for many. Confidence had been rising with a lack of resale inventory despite elevated interest rates, that appears to have waned. There is underlying strong demand for new construction driven by the limited housing supply, however buyers are now deferring purchases. 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 November 2023
- NAHB HMI 34 vs 40 expected Prior was (R) 44
- Current single-family home sales 40 vs 46 prior
- Sales over next six months 39 vs 44 prior
- Traffic of prospective buyers 21 vs 26 prior
- Since late September, mortgage rates are up nearly 40 basis points to 7.57%, according to Freddie Mac.
The most recent low was 31 in December 2022. The high for 2023 was at 56 in July. The high in 2022 was at 83 in January 2022.
NAHB is forecasting approximately a 5% increase for single-family starts in 2024 as financial conditions ease with improving inflation data in the months ahead.
“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “Moreover, higher short-term interest rates have increased the cost of financing for home builders and land developers, adding another headwind for housing supply in a market low on resale inventory. While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market.”
Regional HMI Scores
Looking at the three-month moving averages for regional HMI scores,
- Northeast 49 versus 50 last month
- Midwest 36 versus 39 last month
- South 42 versus 49 last month
- West 35 versus 41 last month
Share of builders reducing home prices:
- As a result of the extended high interest environment, many builders continue to reduce home prices to boost sales.
- In November, 36% of builders reported cutting home prices, up from 32% in the previous two months. This is the highest share of builders cutting prices during this cycle, tying the previous high point set in November 2022. The average price reduction in November remained at 6%, unchanged from the previous month. Meanwhile, 60% of builders provided sales incentives of all forms in November, down slightly from 62% in October.
While more pricing-out is now occurring, the lack of resale inventory at the start of 2023 has shifted the new construction buyer mix. A special question in the September HMI survey revealed that 42% of new single-family home buyers were first-time buyers on a year-to-date basis in 2023. This is significantly higher than the 27% reading from a more normalized market in 2018.NAHB September Report
Given that shelter inflation accounts for roughly 40% of the Consumer Price Index, Dietz added:
“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” said NAHB Chief Economist Robert Dietz. “In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”
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