Housing MarketReal Estate

Homebuilders up the incentives to bring buyers to the table

Homebuilder sentiment dropped for the ninth consecutive month

Homebuilder confidence slid again in September, hitting its lowest level since May 2014 with the exception of the spring of 2020 at the onset of the pandemic, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report, released Monday.

In September, builder sentiment in the market for newly built single-family homes fell three points from August to a reading of 46 points. This latest drop marks the ninth consecutive month of declines.

The NAHB/ HMI report is based on a monthly survey of NAHB members, in which respondents are asked to rate both current market conditions for the sale of new homes and expected conditions for the next six months, as well as traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index, in which any number greater than 50 indicates more homebuilders view conditions as favorable than not.

“Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped pushed mortgage rates above 6% last week, the highest level since 2008,” Robert Dietz, the NAHB’s chief economist, said in a statement.

As buyer traffic slows in many markets across the country, homebuilders are turning to a variety of incentives.

“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,” Dietz said.

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According to the NAHB, 24% of homebuilders reported reducing home prices, up from 19% a month prior.

“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,” Jerry Konter, an NAHB chairman, said in a statement.

Three other indices monitored by the NAHB also posted declines in September. The gauge measuring current sales conditions fell three points, month over month, to 54, while the component analyzing sales expectations for the next six months fell one points to a reading of 46 and the index charting traffic of prospective buyers posted a one-point drop, to 31 points.

Regionally, the three-month moving averages for HMI scores fell in all four regions, to: 44 in the Midwest, 56 in the South, 41 in the West and 51 in the Northeast.

Another survey, the BTIG/HomeSphere State of the Industry Report, also noted sizable decreases in homebuilder outlook. According to the survey, 61% of respondents saw year-over-year decreases in sales ordered per community in August and 53% reported a yearly decrease in traffic, which is up slightly from the 58% reported a month prior.

The BTIG/HomeSphere study is an electronic survey of approximately 50-100 small- to mid-sized homebuilders that sell, on average, 50-100 homes per year throughout the nation. In August the survey had 72 respondents.

This was the softest reading for the sales order metric and the third softest reading for the traffic metric in the history of the survey.

However, there is some good news for builders. The August BTIG/Homesphere survey contained a special question asking about which building materials have become easier to obtain and/or less expensive than a year ago. Although BTIG said there was quite a bit of variation in anecdotal responses, over half of respondents noted that lumber was less expensive and/or more available and 21% noted that windows were less expensive and/or more available. For 21% of respondents, however, “nothing” had improved.

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