Key facts
- U.S. home builder sentiment rose to 35 in August, up from 34 in July.
- This reading exceeded economists' expectations for a decline to 33.
- A subindex for current single-family home sales reached its highest level since May.
- Builders continue to face challenges from high construction costs and economic uncertainty.
- Elevated mortgage rates and limited housing supply are impacting affordability and sales.
U.S. home builder sentiment saw a slight increase in August, reaching a reading of 35 on the NAHB/Wells Fargo Housing Market index, up from 34 in July. This unexpected rise surpassed economists' forecasts, which had predicted a decline to 33. Despite the uptick, overall confidence among residential construction firms remains subdued, primarily due to persistent economic uncertainty, elevated mortgage rates, and high building costs.
A key subindex measuring current sales of single-family homes improved to 39, the highest level seen since May, while indicators for future sales and buyer traffic remained unchanged. Sentiment saw modest gains across the Northeast, South, and West regions, with the Midwest holding steady.
The index has now stayed below the 50 mark, which signifies positive business conditions for builders, for over two years, and below 40 for 16 consecutive months, the longest such period since 2012. NAHB Chairman Bill Owens noted that builders are contending with rising material costs, partly driven by higher gasoline and diesel prices, and weak speculative home building as potential buyers remain hesitant.
The residential real estate market continues to face significant headwinds, including high mortgage interest rates and a limited supply of homes, which severely impact affordability and sales. While the contract rate on 30-year fixed-rate mortgages saw a slight decrease, it remains near its highest point in over a year at 6.77%. In response, many builders are resorting to price reductions, with an average cut of 6%, and offering various sales incentives to attract buyers.