Elevated mortgage rates, coupled with a stronger-than-expected inflation reading, dampened homebuilder sentiment in April.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) did not change in April, staying at a reading of 51, according to data released on Monday. This marks a shift from a three-month period of gains for the index.
The HMI is a monthly survey that gauges NAHB members’ perceptions of newly built single-family home sales, expected sales for the next six months and potential homebuyer traffic. An index of 50 is neutral. Anything higher than 50 indicates that builders view conditions as favorable, while readings lower than 50 indicate that builders view conditions as unfavorable.
“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,” NAHB chief economist Robert Dietz said in a statement. “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.”
NAHB Chairman Carl Harris, a custom homebuilder from Wichita, Kansas, thinks that “policymakers can help ease affordability challenges by reducing inefficient regulatory rules that raise housing costs and limit supply,” he said in a news release.
In April, 22% of builders cut prices, down from 24% in March and 36% in December 2023. But the average price reduction in April held steady at 6% for the 10th straight month. Meanwhile, the use of sales incentives fell to 57% in April, down from a share of 60% in March.
Additionally, the NAHB reported that two of the three major HMI indices posted increases in April. Homebuilders’ gauge of current sales conditions rose one point to 57, while the gauge measuring the traffic of prospective buyers increased by one point to 35. Lastly, the component charting sales expectations over the next six months fell two points to 60.
The three-month moving averages for the HMI increased across each of the four major regions. 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.
