Why sell a house with a 3% mortgage to buy a new one with a 7% mortgage?
That wouldn’t make sense. And new home builders apparently know it.
For four months, builder confidence in the new home market was on a steady upswing, according to data from the National Association of Home Builders. But in April, as the latest inflation data showed an alarming trend, builder confidence did not grow.
But there’s good news: Builder confidence in the market for newly built single-family homes was 51 in April, unchanged from March, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Although there wasn’t a gain, the index is holding about the key breakeven point of 50.
Buyers Watching Interest Rates, Builders Fighting Regulatory Rules
While prospective buyers pause and hope for lower interest rates, builders with regulatory rules that hamper them would ease.
“With many frustrated buyers back on the fence waiting for interest rates to fall, policymakers can help ease affordability challenges by reducing inefficient regulatory rules that raise housing costs and limit supply,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan.
NAHB Chief Economist Robert Dietz said that the home building industry holds out hope that the Federal Reserve will announce rate cuts later this year.
“April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed,” said NAHB Chief Economist Robert Dietz. “With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year, and that mortgage rates will moderate in the second half of 2024.”
Builders Cutting Down on Using Sales Incentives, But Are Cutting Prices
The April HMI survey also revealed that 22% of builders cut home prices this month, down from 24% in March and 36% in December 2023. However, the average price reduction in April held steady at 6% for the 10th straight month. Meanwhile, the use of sales incentives ticked down to 57% in April from a reading of 60% in March.
Image: Envato Elements
This article, "Alarming Inflation Data Gives Pause to New Home Builders" was first published on Small Business Trends
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