High Mortgage Rates Weigh Down Builder Confidence

(Illustration courtesy of NAHB/Wells Fargo)

Mortgage rates in the 7% range and elevated construction financing costs continue to damp builder sentiment, the National Association of Home Builders/Wells Fargo Housing Market Index reported.

Builder confidence in the market for newly built single-family homes dipped two points to 43 in June, the lowest reading since December 2023.

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” NAHB Chairman Carl Harris said. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

NAHB Chief Economist Robert Dietz said a lack of progress on reducing shelter inflation–which is currently running at a 5.4% year-over-year rate–is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%. “The best way to bring down shelter inflation and push the overall inflation rate down to the 2% range is to increase the nation’s housing supply,” he said. “A more favorable interest rate environment for construction and development loans would help to achieve this aim.” The June survey also revealed that 29% of builders cut home prices to bolster sales in June, the highest share since January 2024 (31%) and well above the May rate of 25%. However, the average price reduction in June held steady at 6% for the twelfth straight month. Meanwhile, the use of sales incentives ticked up to 61% in June from a reading of 59% in May. This metric is at its highest share since January 2024 (62%).