<div>As mortgage rates dropped by more than half a percentage point from early August to mid-September, according to Freddie Mac, builders are feeling slightly more optimistic this month, despite ongoing challenges with rising construction costs.The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed a slight uptick in builder confidence for newly constructed single-family homes. In September, the index stood at 41, up from 39 in August, marking the first increase after four consecutive months of declines.“Thanks to lower interest rates, builders are now more hopeful about future new home sales—the first time we’ve seen this since May 2024,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas. “However, construction costs remain high in comparison to household budgets, tempering enthusiasm for the current market. Additionally, builders are facing increased competition from existing home inventory, which is rising as the mortgage rate lock-in effect eases with these lower rates.”NAHB Chief Economist Robert Dietz added, “With inflation slowing down, we expect the Federal Reserve to start easing monetary policy this week. This should help bring mortgage rates down further, as well as reduce the interest rates for land development and construction loans. Easing these costs is essential to addressing the ongoing housing affordability crisis.”The latest HMI survey also revealed some positive trends for builders. The percentage of builders offering price cuts dropped in September for the first time since April, falling one point to 32%. Additionally, the average price reduction was 5%, marking the first time it dipped below 6% since July 2022. Sales incentives also saw a decline, with 61% of builders offering them in September, down from 64% in August.The NAHB/Wells Fargo HMI, a monthly survey conducted for over 35 years, measures builders’ perceptions of current single-family home sales, sales expectations for the next six months, and traffic of prospective buyers. Any index score above 50 indicates more builders view conditions as favorable rather than poor.In September, all three HMI indices showed improvement. The index tracking current sales conditions rose one point to 45, future sales expectations jumped four points to 53, and the gauge for prospective buyer traffic increased two points to 27.Regionally, the three-month moving averages of HMI scores were mixed. The Northeast fell three points to 49, the Midwest gained one point to 40, the South slipped one point to 41, and the West climbed two points to 39. Click here for more details or to view Housing Economics PLUS.</div>

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Builder Sentiment Improves as Mortgage Rates Dip, Yet Affordability Issues Linger

As mortgage rates dropped by more than half a percentage point from early August to mid-September, according to Freddie Mac, builders are feeling slightly more optimistic this month, despite ongoing challenges with rising construction costs. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed a slight...