High mortgage rates hit homebuilders again this month, as pessimism over the housing situation deepened for the fourth month in a row.
More builders classified housing conditions as poor than good in November, according to monthly sentiment indexes from the National Association of Home Builders (NAHB) and Wells Fargo Housing. The index fell from 40 to 34 in September, the lowest reading since December 2022 and the third consecutive month it fell below the key breakeven point of 50.
The decline was worse than expected. Economists polled by Bloomberg had expected a reading of 39.
Still, the index was taken before the latest gauge on inflation, which showed an even steeper decline in consumer price growth, which could lead to an improved outlook for interest rates.
“Although builder sentiment eased again in November, recent macroeconomic data point to improving homebuilding conditions in the coming months,” NAHB chief economist Robert Dietz said in a statement.
He added: “In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since the end of September, which should help push mortgage rates closer to or below 7.5%. Given the current home inventory shortage, somewhat lower mortgage rates will boost housing demand and set the stage for better builder views about market conditions in December.
Furthermore, November was severe. Other index readings fell further into declining territory this month.
Builders’ outlook for current sales conditions fell to 40 from 46, while their expectations for sales over the next six months fell to 39 from 44. Their outlook regarding traffic from potential buyers was particularly negative, falling from 21 to 21. In October 26, the NAHB found.
Housing conditions declined in November in all four regions included in the index, with readings below 50 in all four regions.
Mortgage rates are largely responsible for the falling sentiment. At the beginning of the month, rates on 30-year fixed mortgages – the most common home loan for purchases – were closer to 8%, compared to 7%. To increase sales, builders had to cut into their own profits by cutting prices and offering other incentives, Such as mortgage rate buydown where the builder pays the upfront cost to reduce the rate on the home loan.
In November, 36% of builders cut home prices, up from 32% in the previous two months and the highest share since November 2022. Overall, 3 out of 5 builders offered some kind of sales promotion this month.
Luis Hernandez, a builder from Mexico, takes a lunch break inside a home under construction during warm weather in Manvel, Texas, US, on July 13, 2023. (Reuters/Adris Latif) (Adris Latif/Reuters)
However, the decline in this month’s index largely reflects sentiment among smaller, private builders, who make up the bulk of NAHB’s survey. This is supported by the monthly BTIG/HomeSphere survey, which surveys 75 to 125 small and medium-sized tract homebuilders nationally.
However, the decline in this month’s index largely reflects sentiment among smaller, private builders, who make up the bulk of NAHB’s survey. This is supported by the monthly BTIG/HomeSphere survey, which surveys 75 to 125 small and medium-sized tract homebuilders nationally.
In contrast, executives at public builders such as DR Horton (DHI), Century Communities (CCS), LGI Homes (LGIH), and Meritage Homes (MTH) indicated that buyer movement has not kept the companies from declining. Recent earnings report.
The latest survey found that despite “easy year-over-year” comparisons, sales and traffic trends among these builders have deteriorated, BTIG homebuilding analyst Carl Reichardt Jr. wrote in a note.
“Key Takeaway: Our survey shows that the new home demand trend for private builders remains quite subdued. Public builders told a somewhat different story about October in their September quarter conference call, Reichardt wrote. “We believe the availability and cost of capital and the ability to lower mortgage rates for customers all work in favor of public/large builders in the current environment.”
A home in Medford Walk is seen by DR Horton, a home construction company, in Medford, New Jersey, US, on May 23, 2022. (Reuters/Andrew Kelly) (Andrew Kelly/Reuters)
That rate can change the environment.
This week, the government reported that in October “core” inflation – which strips out the volatile price components of energy and food – rose at the slowest annual pace since September 2021. These datapoints can help steer clear of interest rate hikes by the Federal Reserve.
Already, mortgage rates have retreated, falling last week to 7.50%, the biggest one-week drop since November 2022. The latest reading on rates comes at noon EST Thursday.
janna herron is the personal finance and real estate editor for Yahoo Finance. Follow him on Twitter @JannaHeron,
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Source: ca.finance.yahoo.com
