According to the National Association of Home Builders (NAHB), builder confidence in the market for newly built single-family homes fell two points to 34 in July, down from an upwardly revised reading of 36 in June, per the NAHB/Wells Fargo Housing Market Index (HMI). Sentiment has now remained below the neutral 40 mark for 15 consecutive months, the longest such stretch since 2012, the association reported. NAHB Chief Economist Robert Dietz said affordability remains the industry's primary challenge, citing elevated mortgage rates, costly land, rising material prices and persistent skilled labor shortages.
All three HMI sub-indices declined in July. The gauge for current sales conditions fell one point to 37, the index measuring future sales dropped two points to 43, and the component tracking traffic of prospective buyers posted a two-point decline to 23. Regional three-month moving averages were mixed: the Northeast rose one point to 45, the Midwest increased two points to 45, the South fell one point to 33, and the West dropped one point to 26, according to NAHB data.
Builders continued to lean on price cuts and incentives to move inventory. The survey found that 37% of builders cut prices in July, up from 35% in June and 32% in May, with the average price reduction holding at 6% for a second straight month. The use of sales incentives edged up to 63% in July from 62% in June, marking the 16th consecutive month that at least 60% of builders have offered incentives, per the HMI report.
NAHB Chairman Bill Owens pointed to the newly enacted 21st Century ROAD to Housing Act as a step toward easing supply constraints, noting that it contains provisions on land-use and zoning, regulatory reform and financing tools intended to address obstacles facing builders and buyers, though he said these reforms will take time to implement. Dietz added that the law is a positive step that will help expand housing supply and lower overall housing costs, while more policy change is needed at the state and local level, according to the NAHB release.