Falling mortgage rates and hopes for a Fed rate cut made builders more optimistic about the months ahead
US homebuilders stayed cautious in September, with confidence stuck at 32 for the fifth month, data from the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index showed. However, falling mortgage rates and hopes for a Fed rate cut made builders more optimistic about the months ahead.
Builders’ hopes for a rebound have been buoyed by a 23-basis-point drop in the average 30-year fixed mortgage rate over the past four weeks, now at 6.35%—the lowest since October 2024, according to Freddie Mac. The 25-basis-point rate cut at the Fed's latest meeting predicted by the NAHB came to pass, with the association saying it could further ease financing costs for both developers and buyers.
The HMI index tracking future sales expectations rose two points to 45, its highest since March, while current sales conditions held at 34. The measure of prospective buyer traffic slipped to 21, underscoring ongoing demand challenges.
Despite brighter prospects, builders continued to rely on price reductions and incentives to attract buyers. In September, 39% of builders reported cutting prices, the highest share since the pandemic, up from 37% in August. The average price cut held steady at 5%, a trend in place since last November. Sales incentives were used by 65% of builders, nearly unchanged from the previous month.
Regionally, builder sentiment was mixed. The Northeast held at 44, the Midwest edged up to 42, the South remained at 29, and the West ticked up to 26. The HMI, based on a survey running for over 40 years, remains a key barometer for the new-home market, with any reading below 50 signaling more pessimism than optimism among builders.
The US housing market is still facing affordability issues, low inventory, and changing buyer needs. New figures from the Census Bureau and US Department of Housing and Urban Development (HUD) showed housing starts fell sharply in August, dropping to an annual rate of 1.31 million—down 8.5% from July and 6% from last year. Building permits also slipped to 1.31 million, a 3.7% decrease from July and 11.1% lower than August 2024. This slowdown comes as the job market weakens and unsold homes pile up.
