Builder Confidence Rises, Affordability Challenges Remain
While housing affordability is low, builders are feeling optimistic about 2025.
Builder confidence increased for a second consecutive month in October on positive economic indicators including gradually easing inflation and anticipation of moderating mortgage rates. Challenging affordability conditions remain, however.
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence for newly-built single-family homes was 43 in October, up 2 points from 41 in September.
“While housing affordability remains low, builders are feeling more optimistic about 2025 market conditions,” said NAHB chairman Carl Harris. “The wild card for the outlook remains the election, and with housing policy a top tier issue for candidates, policymakers should be focused on supply-side solutions to the housing crisis.”
Many home buyers remain on the sideline waiting for lower interest rates, said NAHB chief economist Robert Dietz.
“We are forecasting uneven declines for mortgage interest rates in the coming quarters, which will improve housing demand but place stress on building lot supplies due to tight lending conditions for development and construction loans,” said Dietz.
The share of builders cutting prices remained at 32% in October, according to the HMI survey. The average price reduction returned to the long-term trend of 6% after dropping to 5% in September. The use of sales incentives was up slightly from 61% in September to 62% in October.
In addition to gauging builder perceptions of current single-family home sales and sales expectations for the next six months, the survey also asks builders to rate traffic of prospective buyers. 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.
All three HMI indices were up in October. The index charting current sales conditions rose two points to 47, the component measuring sales expectations in the next six months increased four points to 57 and the gauge charting traffic of prospective buyers posted a two-point gain to 29, according to NAHB. On a regional basis, the Northeast increased two points to 51, the Midwest moved two points higher to 41, the South held steady at 41 and the West increased three points to 41.