Homebuilders have begun to lower prices for new home builds as market sentiment hits its ninth consecutive month of declines.
Homebuilder sentiment started the year at 83 points, well above the threshold of 50, which the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (WFHMI) considers negative. By mid-September, sentiment had fallen by three points to 46, making nine straight months of declines.
Builders blame the slip in sentiment on the rising interest rate, which has pushed the average price of a 30-year fixed mortgage up from 3% at the start of the year to 6% in September, according to Mortgage News Daily.
Members of the NAHB have argued that higher mortgage rates are behind the drop in consumer demand for housing. The Federal Reserve, meanwhile, is expected to raise its benchmark interest rate between 75-100 basis points on Wednesday as inflation lingers near a four-decade high.
“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” NAHB Chairman Jerry Konter said.
With sentiment half of what it was in January, nearly 25% of homebuilders in September reported lowering home prices, according to Konter.
The WFHMI looks at three components to determine housing sentiment across the nation, which have all seen declines for the month. Of these components, current sales conditions fell by three points to 54, sales expectations in the next six months dipped lower by one point to 46, and buyer traffic dropped by one point to 31, according to index data.
With elevated costs impacting national home sales, many homebuilders chose to offer incentive deals instead of outright lowering prices. However, 6% more homebuilders reported lowering prices in September than in August.
“In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities, and price reductions,” said Robert Dietz, chief economist at the NAHB.
National sentiment following nine months of declines resulted in the following: The Northeast fell five points to 51; the Midwest dropped five points to 44; the South slipped seven points to 56; and the West declined 10 points to 41, according to the WFHMI.