Sentiment among U.S. homebuilders rose to a four-month high this month, with expectations rising
A measure of housing market conditions from the National Association of Home Builders and Wells Fargo rose for the second straight month to 43 in October. That was better than the average estimate of 42 in a Bloomberg survey of economists.
The three components of the housing market index rose. The outlook for the next six months rose to the highest level since April, while the level of potential buyer traffic and the index of current sales also improved.
After the Federal Reserve cut rates by half a percentage point last month, labor market and inflation data have been stronger than expected and policymakers have discussed a more gradual approach going forward. That has led to a rise in mortgage rates, which are up from a two-year low they hit in September.
“We forecast an uneven decline in mortgage rates in the coming quarters, which will improve housing demand but put pressure on the supply of building lots due to tight lending conditions for development and construction loans,” said NAHB chief economist Robert Dietz in a prepared statement.
While new home sales have declined and risen in 2024, the largest builders have been solidly profitable and have taken market share from smaller companies, which generally have higher financing costs. The iShares US Home Construction listed fund, made up of major builders and related companies, is at an all-time high.
Builders are already looking ahead to the crucial spring sales season, with expectations that lower financing costs will bring new customers into the market.
“With a lower rate environment, and given that consumers have become a little more reliant on these higher rates in recent years, we expect a pretty strong spring sales season under the right conditions,” KB said. Jeff Kaminski, Home’s chief financial officer, said in an earnings call last month.
The share of builders cutting prices in October remained unchanged at 32%, according to NAHB data. The average price decline increased to 6%, returning to the long-term trend after a decline in September. And the share of builders who indicated that they used sales incentives rose to 62%.
The gains in the index were broad-based. On a three-month moving average basis, a measure that helps smooth short-term volatility, the gauge improved in the Northeast, Midwest and West, while holding steady in the South.
The government will provide another snapshot of the new-build market on Friday when it publishes its housing report for September.