Sentiment among homebuilders is falling as companies wait for interest rate cuts

Confidence among US homebuilders fell to the lowest point of the year for the fourth month in a row in August, after high lending rates and house prices weigh on both companies and buyers.

An index of housing market conditions from the National Association of Home Builders and Wells Fargo fell 2 points to 39 this month from revised July levels. That lagged behind the average estimate of economists polled by Bloomberg, who expected a level of 43.

The data suggests gloomy views on current conditions, but a more optimistic view of the prospects. Measures of potential buyer traffic and current sales both fell to new lows for 2024, while a gauge of sales expectations for the next six months rose 1 point to 49. That may reflect expectations that mortgage rates will will decline, NAHB Chief Economist Robert Dietz said in a prepared statement.

“With electricity inflation data points to interest rate cuts “The sharp drop in Federal Reserve and mortgage rates in the second week of August should see buyer interest and builder sentiment improve in the coming months,” Dietz said.

New home sales have held up better than existing home sales this year, even after declining over the past few months as many builders slashed prices or lowered consumers’ mortgage rates to close deals. And shares of publicly traded builders have outperformed the broader market. The iShares US Home Construction ETF, made up of builders and related companies, is up 28% from a year ago, compared with a 21% gain in the S&P 500 Index.

This month, 33% of builders reported cutting prices, up from the 31% who did so in July and the highest this year, according to NAHB. The average price decline remained at 6% for the 14th month. The share of builders reporting using sales incentives was the highest since April 2019, at 64%.

Mortgage rates, which track U.S. Treasury yields, have fallen from last year’s high on prospects that the Fed will cut rates in September from current 20-year highs. Thirty-year mortgage rates fell to just above 6.5% this month, back to May 2023 levels, though still well above pre-pandemic levels.

Builder sentiment fell in August in the Northeast and South, and remained unchanged in the West and Midwest.

The government will take a look at the start of house building on Friday when it releases new house building data for July.