Builder-confidence index falls for the fourth month in a row

They had also ramped up sales incentives to boost interest, with the share of builders cutting home prices rising to the highest level since November 2022.

But builder sentiment may likely improve in December, as rates fall and the U.S. economy shows signs of weakening with inflation moderating.

The November figure fell short of what economists were forecasting on Wall Street, which was expecting sentiment to remain unchanged.

A year ago, the index stood at 33. 

Key details: With rates inching towards 8%, builders upped sales incentives to keep buyers interested.

The share of builders cutting prices to boost sales rose to the highest level since November 2022, to 36%, the NAHB said, from 32% over the last two months. The average price cut was 6%. 

About 60% of builders were also using incentives — other than price cuts — to improve sales in November. 

The NAHB also said it was forecasting a 5% increase in single-family starts in 2024, as “financial conditions ease with improving inflation data in the months ahead.” 

The three gauges that underpin the overall builder-confidence index fell.

• Builders were pessimistic about current sales conditions. The gauge fell by 6 points.

• They were downbeat on future sales. The gauge fell by 5 points. 

• Builders were also seeing a drop in the traffic of prospective buyers. The gauge fell by 5 points. 

Big picture: Rates inched towards 8%, spooking buyers, who tried to amp up sales by cutting prices, offering more generous mortgage rate buy-downs, and more. 

But with rates falling back to the 7% range, builder sentiment may improve in the months to come, as buyer demand recovers.

And the lack of inventory across the nation will also keep buyers interested in newly built homes, since existing homeowners feel little incentive to sell due to the “lock-in effect.”

What the NAHB said: “The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., said in a statement.

“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” Robert Dietz, chief economist at the NAHB, said.

What are they saying: “Homebuilder confidence continues to be hindered by continued high interest rates and low potential homebuyer traffic. Not only is home affordability impacted by the high rates, but remember that homebuilders use credit as well to pay wages, buy materials, et cetera,” Selma Hepp, chief economist at CoreLogic, said in a statement.

And “the cost of construction loans also remains pricey due to high interest rates across the board, and that is impacting their ability to do business,” she added.

Market reaction: The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was below 4.5% on Thursday morning.

The SPDR S&P Homebuilders ETF (XHB
XHB
) traded lower during the morning session, as well as big home builder stocks like D.R. Horton Inc (DHI
DHI,
+1.44%
), Toll Brothers (TOL
TOL,
+1.74%
), and Lennar (LEN
LEN,
+1.15%
). Stocks
DJIA

SPX
were mixed.