Builder sentiment was flat in April as mortgage rates remained close to 7% over the past month and the latest inflation data failed to show improvement during the first quarter of 2024.
Builder confidence in the market for newly built single-family homes was 51 in April, unchanged from March, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This breaks a four-month period of gains for the index, which nonetheless remains above the key breakeven point of 50.
April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed. With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year, and that mortgage rates will moderate in the second half of 2024.
The April HMI survey also revealed that 22% of builders cut home prices this month, down from 24% in March and 36% in December 2023. However, the average price reduction in April held steady at 6% for the 10th straight month. Meanwhile, the use of sales incentives ticked down to 57% in April from a reading of 60% in March.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The HMI index charting current sales conditions in April increased one point to 57 and the component gauging traffic of prospective buyers also edged one point higher to 35. The component measuring sales expectations in the next six months fell two points to 60.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased four points to 63, the Midwest gained five points to 46, the South rose one point to 51 and the West registered a four-point gain to 47.
The HMI tables can be found at nahb.org/hmi.
