Homebuilder confidence started the new year on a soft note, as buyers remained constrained by affordability issues despite mortgage rates hitting a three-year low.
Builder confidence in the market for newly built single-family homes slid to 37 in January, down two points from December, the National Association of Home Builders reported, citing the NAHB/Wells Fargo Housing Market Index (HMI).
“While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors,” said NAHB Chairman Buddy Hughes, a homebuilder and developer from Lexington, North Carolina. “Buyers are concerned about high home prices and mortgage rates, with downpayments particularly challenging given elevated price-to-income ratios.”
On a positive note, the average 30-year mortgage rate fell to 6.06% as of Jan. 15, its lowest rate in three years and almost 1% below the same period last year, NAHB Chief Economist Robert Dietz said.
Most responses to the homebuilder survey were received before the announcement that Fannie Mae and Freddie Mac would purchase $200 billion of mortgage-backed securities in an effort to further trim borrowing costs, NAHB noted.
The HMI gauging future sales expectations fell three points to 49, while the component measuring current sales conditions fell one point to 41, and the index charting prospective-buyer traffic fell three points to 23.
“The future sales component of the HMI dipped below 50 for the first time since September, indicating that builders continue to face several issues that include labor and lot shortages as well as elevated regulatory and material costs,” Dietz said.
The survey also found that 40% of respondents reported cutting prices in January, the same level as December. This marks the third consecutive month since May 2020 that the share has been 40% or higher, NAHB said. The average price reduction rose to 6% from 5% in December, while the use of sales incentives was 65%, the 10th consecutive month above 60%.
Regionally, the three-month averages for the HMI scores were mixed, with the Midwest flat at 43, the Northeast dropping two points to 45, the South sliding a point to 35, and the West rising one point to 35.
Each month, NAHB/Wells Fargo surveys builders, asking them to rate single-family home sales over the next six months as good, fair or poor. It also asks builders to rate traffic of prospective homebuyers as “high to very high,” “average” or “low to very low.” Scores are then calculated, and any number above 50 indicates that more builders view market conditions as good/high than poor/low.