Homebuilder sentiment in the US dropped a fourth month to the lowest since December, an update released on Thursday showed.
It’s been a roller coaster for builders. Sentiment fell every month in 2022 as the Fed dialed up the most aggressive rate-hiking campaign in a generation and buyers struggled with an increasingly onerous affordability calculus.
Things turned around in 2023 when a dearth of resale inventory left new construction as the only option for anyone not priced out of the housing market. Sentiment rose for seven straight months.
Then, in August, a renewed selloff at the long-end of the Treasury curve drove mortgage rates through 2022’s highs, further burdening already stretched buyers. Sentiment has fallen every month since. Prior to November’s bond rally, mortgage rates were at new 23-year highs close to 8%.
NAHB Chairman Alicia Huey offered a familiar lament. “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,” she said Thursday.
“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,” Huey added.
The darkening mood among builders bodes poorly for housing starts, or at least it has historically.
This cycle is different in too many ways to count, but if past is precedent, builder sentiment should lead starts lower. An update on starts and permits is due Friday.
It’s not all bad news, though. This month’s bond rally pushed mortgage rates lower, which should bolster buyers at the margins, particularly given still scarce existing home supply.
“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%,” NAHB Chief Economist Robert Dietz remarked. “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.”
Fingers crossed. In an update published Thursday, Redfin’s Dana Anderson flagged the favorable CPI report. “Mortgage rates are declining partly because inflation is easing,” she said. “That means it’s almost certain the Fed won’t hike interest rates again this year — and they may start cutting rates earlier than expected.”