Given the sharp decline in financing costs witnessed in recent weeks, you might expect homebuilders to be in a better mood. Alas.

Builder sentiment printed a new low for 2024 on the NAHB’s gauge, updated for August on Thursday.

This month’s decline — two points from a downwardly-revised 41 in July — was the fourth consecutive.

At just 39, the index now sits 11 points below the threshold separating net optimism from pessimism, the furthest underwater sentiment’s been since December.

There’s an important caveat: The lackluster reading didn’t pick up the drop in rates, or at least not to the extent it will next month, assuming the recent decline holds. According to the NAHB, around 75% of the survey responses for August were tallied prior to the 27bps decline on the 30-year fixed precipitated by the largest US Treasury rally since Lehman.

Three-quarters of the responses “were collected… when interest rates averaged 6.73%,” Wednesday’s release said. So, ~20bps ago. That’s a big difference in a market that’s even more sensitive to rates than it would be by nature. Note that this week’s MBA update showed a sharp increase in application activity driven by a 35% jump in refis.

“With current inflation data pointing to interest rate cuts from the Fed and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,” NAHB Chief Economist Robert Dietz remarked.

While builder margins are nothing to shed crocodile tears over, it is a business just like any other. If you put builders in a position where margins already crimped by elevated labor and material costs are further pinched by the necessity of offering incentives to stretched buyers who won’t take the plunge absent price reductions, rate buy-downs or both, you’re disincentivizing new construction.

We’ll get an update on housing starts and permits Friday. The figure above serves as a reminder that sentiment does lead single-family starts, for obvious reasons: These are the people building the houses.

“The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing,” NAHB Chair Carl Harris reminded policymakers. (Carl’s a custom builder in Wichita.)

Thursday’s release showed a third of builders cut prices this month in a bid to boost sales. That was the largest share of 2024. At 64%, the overall use of sales incentives was the most pervasive in half a decade.

Again: It is a business.