- The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 34 in November, lower than economists expected.
- This is the fourth consecutive month of declines.
- Economists at the NAHB see conditions improving, forecasting a drop in mortgage rates to around 7.5%. They expect a 5% rise in single-family housing starts in 2024.
- High mortgage rates prompted 36% of builders to cut prices on homes in November, its highest level in a year.
Mortgage rates are near their highest levels in more than two decades and it once again further weighed on home builder confidence.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell for the fourth consecutive month in November. While home builder sentiment hasn’t been this low since December 2022, nearly all of the data was collected before recent drops in inflation data.
“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” wrote NAHB Chief Economist Robert Dietz in an analysis of the data.?
The housing market index came in at 34 in November, below the reading of 40 that economists were expecting to see, which would have kept it level with October’s reading. The index has dropped 22 points since July and is still well below the 83 reading it reached in November 2021.
“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” said NAHB Chair Alicia Huey.
To accommodate the high mortgage rates, some builders are reducing home prices to boost sales. The NAHB reported 36% of homebuilders said they cut home prices, up from 32% the past two months and the highest level since November 2022. The average home price reduction was 6% in November.
Higher rates have also increased the cost of financing for home builders and land developers, another headwind in a housing market short on supply.
There could be a break in interest rates ahead, though. This week’s Consumer Price and Producer Price indices showed inflation came in lower than expected, which could put pressure on the Federal Reserve to stop hiking or either cut interest rates.
With inflation data improving, NAHB is forecasting that easing financial conditions will produce an approximate 5% increase in starts on single-family homes in 2024.?
“Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December,” Dietz said.?
Correction—Nov. 16, 2023: A previous version of this article misstated the year economists forecast a 5% rise in single-family housing starts. They expect that growth in 2024.?