Key facts
- U.S. homebuilder sentiment fell two points to 35 in June.
- This marks the 14th straight month the index has remained below 40.
- Rising material costs, elevated mortgage rates, and affordability challenges are impacting the housing market.
- 35% of builders reported cutting prices, up from 32% in May.
- Sales incentives were used by 62% of builders, up from 61% in May.
U.S. homebuilder sentiment declined in June, reaching its lowest point in over a decade, as persistent challenges including rising mortgage rates and construction material costs continued to weigh on the housing market. The National Association of Home Builders/Wells Fargo Housing Market index dropped two points to 35 this month, marking the 14th consecutive month the index has remained below 40. This sustained low level is the longest stretch since the 2011-2012 foreclosure crisis.
Economists had anticipated the index to remain steady at 37. The NAHB attributed the decline to increasing material costs, elevated mortgage rates, and ongoing affordability issues. The conflict in the Middle East, which drove up oil prices and consequently inflation and Treasury yields, has contributed to higher mortgage rates. The rate on the 30-year fixed-mortgage has increased by more than 50 basis points since late February.
Prior to the recent conflict, the housing market was already under pressure from import tariffs that increased the cost of building materials and appliances. Residential investment, a component that includes homebuilding, has contracted for five consecutive quarters. To stimulate demand, builders are increasingly offering incentives, such as price reductions. The percentage of builders reporting price cuts rose to 35% from 32% in May, with the average reduction remaining at 6%. The use of sales incentives also increased to 62% from 61% in May, continuing a trend of such incentives being used by at least 60% of builders for 15 months.
The survey's metrics for current sales conditions fell two points to 38, while the gauge for future sales remained unchanged at 45%. The measure of prospective buyer traffic also held steady at 25.