Local Builders Face Challenges as U.S. Homebuilder Sentiment Hits New Low

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Homebuilder sentiment in the U.S. has fallen to its lowest level since January, as reported by the National Association of Home Builders (NAHB). The NAHB's monthly survey shows a decrease in builder sentiment from 51 in April to 45 in May. A score below 50 indicates negative sentiment. This drop is significant when compared to the high of 90 seen in November 2020.

The survey details sentiment in three areas, all of which have declined. Current sales conditions decreased by six points to 51, buyer traffic by four points to 30, and sales expectations for the next six months by nine points to 51. These reductions reflect builders' growing concerns about the near future of the housing market.

High interest rates on home loans are largely responsible for the decline in builder sentiment. These rates have discouraged potential buyers, leading builders to offer various incentives to attract customers. NAHB Chief Economist Robert Dietz has linked slow progress in reducing inflation to higher long-term interest rates, which adversely affect builder confidence.

Since early April, the average rate on a 30-year fixed mortgage has stayed above 7%, making homes less affordable for many. In response, about 25% of builders have lowered their prices in May, up from 22% in April, with an average discount of 6% for the eleventh month in a row.