Homebuilders are feeling worse about the housing market than they've ever been since December 2023 as high mortgage rates curtail new home sales.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index fell to 42 points in July. That is one point lower than the previous month and also lower than economists' estimates of 43 points. It is the lowest level recorded since December 2023.
In the index, any number under 50 indicates that more homebuilders view the housing market conditions as poor.
Why Homebuilder Sentiments Fell
The report attributed the recent decline in homebuilder sentiments to high mortgage rates, which averaged 6.89% for the 30-year fixed mortgage in the week ending July 11, per Freddie Mac's Primary Mortgage Market Survey.
The high borrowing costs also led to a six-month low in new home sales in May. According to data from the Census Bureau, the sales of new single-family homes fell 11.3% in May from the previous month to a seasonally adjusted rate of 619,000. On an annual basis, home sales declined by 16.5%.
May's home sales were the lowest recorded since November 2023. It also missed analyst expectations of 633,000 units.
"Homebuilders had been enticing buyers with rate buydowns and other concessions, but for some homebuyers, those financial incentives are no longer enough to get them on the building lot," Bright MLS chief economist Lisa Sturtevant said in an email to Yahoo Finance.
"With more housing inventory and softening demand, expect the third quarter of 2024 to be a slower new housing market than the second half of 2023," she added.
Homebuilders Expect Mortgage Rates To Fall Soon
While homebuilder sentiment has declined, some builders said they expected mortgage rates to fall later this year as inflation data shows signs of easing.
"Though inflation is still above the Federal Reserve's target of 2%, it appears to be back on a cooling trend. NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders, and developers," NAHB Chief Economist Robert Dietz said in the report.
If the Fed cuts its interest rate this year, mortgage rates could also drop between 0.50% to 0.75%.
