Confidence among U.S. homebuilders unexpectedly fell in January as costly sales incentives outweighed the recent boost from lower mortgage rates and the president’s housing proposals.
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An index of market conditions from the National Association of Home Builders and Wells Fargo fell 2 points to 37 in January, the first decline since August. That lagged behind the average estimate of economists surveyed by Bloomberg, who expected a reading of 40. A value below 50 means that more builders consider conditions bad than good.
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The gloomy mood among builders puts a damper on the momentum that has been building in the housing market in recent weeks
Shares of homebuilders and related companies rose sharply earlier this month after President Donald Trump rolled out a series of policy proposals to make housing more affordable. But NAHB said most of the survey responses were collected before last week’s
There were also other challenges that contributed to the lower value.
“Builders continue to face several challenges, including labor and lot shortages, as well as higher regulatory and material costs,” Robert Dietz, chief economist at NAHB, said in a statement.
This was clearly evident from the survey of sales expectations over the next six months, which fell below breakeven for the first time since September. The indexes of current sales and potential buyer traffic have been below that threshold for some time, and both continued to decline in January.
While Trump’s ideas provided a “shock” to industry stocks, builders’ gross profits are still expected to decline in the first quarter, partly due to recent weakness in home prices, Alan Ratner, an analyst at Zelman and Associates, said in a Jan. 13 note.
Despite some improvement in affordability, prices are still high overall and mortgage interest rates remain double what they were in 2021. That has forced builders to cut prices and offer expensive sales incentives, often by lowering customers’ mortgage rates.
About 65% of builders reported using sales incentives in January, the tenth straight month the statistic has exceeded 60%, according to NAHB. Meanwhile, 40% of builders reported they had reduced prices, unchanged from last month.
Across the U.S., sentiment among builders fell in the South, the nation’s largest homebuilding region, as well as in the Midwest and West. Confidence increased in the Northeast.