Hope floats.
Although the marquee measure of national homebuilder moods in America was woeful again in September, an indicative metric for future demand perked up, prompting NAHB’s chairman and chief economist to offer cautiously optimistic assessments of the outlook.
At 32, the headline sentiment read was unchanged from last month and missed estimates. September marks the 17th straight month below the threshold separating net optimism from pessimism.
The figure’s a rather stark reminder: It’s rough out there, and has been for quite a while.
“[B]uilders continue to contend with rising construction costs,” the color accompanying Tuesday’s release said. At the same time, demand for a mountainous pile of unsold new construction remains tepid on a good day. Price cuts are commensurately pervasive. 39% of builders cut prices this month, up from August and the highest share since COVID.
But again, hope floats thanks mostly to the promise of lower rates. According to Mortgage News Daily, the 30-year fixed’s 6.25% or so. The MBA’s mid-week update will probably “confirm” another weekly decline on the heels of a 20bps drop over the preceding two weeks.
As the figure reminds you, rates are the lowest since October of last year.
That “should help spur housing demand,” the NAHB’s Buddy Hughes remarked, in the same Tuesday release. The association’s chief economist Robert Dietz echoed that, calling the rate relief “a positive sign for future housing demand.”
The NAHB’s gauge of future sales expectations ticked up to 45 this month. That was the best reading since March.
Still, as the chart makes abundantly clear, we’re nowhere near out of the woods. 45 on that measure only counts as “good” in the worst of markets.
This week’s Fed cut, Dietz went on, “will help lower interest rates for builder and developer loans.”
A word of caution on all this: Mortgage rates fell sharply into last year’s September FOMC meeting too, and for a lot of the same reasons. Then, as now, the US labor market looked like it might be rolling over in earnest. And then, as now, markets were busy pricing in Fed easing.
Mortgage rates bottomed at 6.15% the week after the Fed cut rates by 50bps in September of last year. By January, they sported a seven handle again.
Meanwhile, homebuilder stocks are rallying hard.
I assume it is mostly investors front-running rate cuts, but may also reflect the big public builders’ advantages over the smaller builders who influence the NAHB survey.
Is there a survey or statistic that shows how many households can actually afford to buy a single family home at current prices in various areas of the country?
I’ll bet Redfin has the data
Answering my own thought. About 60% of households cannot afford a home at todays prices but of course there are variables. The NAHB does track this stuff. I don’t think decreasing interest rates will have much effect on the home builders. Self inflicted harm from increased labor cost, material cost and stagnant wages will keep sales low.
Maybe pre-fab construction will become more common.
Where I live, there are 2 large pre-fab residential construction projects being built.
Really impressive- there is a staging area about 15 miles away where the modular units get dropped off from the factory. They are completely wrapped in shrink wrap. Next, a massive flat bed brings a unit to the construction site, where a crane lifts each unit into place. Four to five go in each day. The roof and balconies are added on site.
Evidently, all-in costs are about 25% less.
One might wonder how well the pre-fab construction will last. The next town over was once well known for its apple orchard business, but one farm closed but zoned both commercial (medical and service) and residential (mix of starter apartments and retirement). The starter apartments are about a year old and are having post-construction issues.