Sentiment among homebuilders is stalling as buyers wait for interest rates to drop

Sentiment among U.S. homebuilders has leveled off this month after a recent surge as potential homebuyers look for signs that borrowing costs will fall.

RELATED: Mixed fortunes for builders, with both supply costs and permits rising

The National Association of Home Builders/Wells Fargo index of housing market conditions remained at 51 in April, still the highest since July but breaking a streak of four consecutive monthly gains, data released Monday showed. The outcome was in line with the average estimate of economists surveyed by Bloomberg.

“April’s flat figures suggest there is potential for demand growth, but buyers are hesitant until they can better assess where the interest goes,” NAHB chief economist Robert Dietz said in a statement.

The last digit represents a pause in what is otherwise a rebounding housing market. Some of the nation’s largest homebuilders recently reported robust order books and said consumers are becoming increasingly accustomed to still-high mortgage rates.

Sentiment remains below the highs of late 2020, when borrowing costs were less than half of current levels, at almost 7%. In a sign of the market’s fragility, an index of homebuilding stocks fell 5.1% on April 10 after a higher-than-expected inflation report weakened hopes that the Federal Reserve would cut rates soon.

The homebuilder group’s expected sales over the next six months fell to 60 from 62 this month, the first decline since November. Measurements of current sales and potential buyer traffic increased slightly.

Builders have retreated from price cuts as mortgage rates stabilized below the near 8% level they reached last fall. In April, 22% of builders reported that they had reduced prices, compared to the 24% who reduced prices in March and the 36% who reduced prices in December. The share of builders offering customers some form of sales incentive fell 3 percentage points to 57% in April, the NAHB said.

Among U.S. regions, builders in the Northeast and West saw the biggest confidence gains in April, with sentiment in each region rising 4 points to 65 and 49, respectively. Sentiment rose slightly in the Midwest and fell slightly in the South.

The government will take a look at housing construction on Tuesday when it releases data on March home construction starts and building permits. The National Association of Realtors will release data on sales of existing homes on Thursday.