Homebuilder sentiment declined in May for the first time in six months as mortgage rates above 7% kept buyers on the sidelines and weighed on expectations.
The National Association of Home Builders/Wells Fargo index of housing market conditions fell by 6 points to 45 in May, the lowest level since the start of the year. This month's reading trailed all economists' estimates in a Bloomberg survey, which had a median forecast of 50.
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A measure of builder sales outlook over the next six months fell 9 points, the most since October 2022, to 51 this month.
"A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment," NAHB Chief Economist Robert Dietz said in a statement. "The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing."
The NAHB gauge of prospective buyer traffic slipped 4 points to 30, the lowest since January, while a measure of current sales fell for the first time since November.
A combination of still-high prices and 30-year mortgage rates holding above 7% have left home affordability near an all-time low in an NAHB
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Builders have been tapping into buyer angst, buying down customers' mortgage rates as well as cutting prices and home sizes in some cases. New-home prices are down 1.9% compared with a year ago. A shortage of homes still plagues the resale market, however, where prices in March were still up 4.8% from a year earlier, according to the National Association of Realtors.
While some builders report strong demand because of few choices in the resale market, the persistence of high borrowing costs still has many prospective buyers waiting for rates to fall.
"The market has slowed down since mortgage rates increased and this has pushed many potential buyers back to the sidelines," NAHB Chairman Carl Harris, a builder from Wichita, Kansas, said in a statement.
This month, 25% of builders reported cutting home prices, compared with 22% in April and 36% in December 2023. The average price reduction held steady at 6% for the 11th straight month. The share using sales incentives increased to 59% from an April reading of 57%, the NAHB report showed.
Builder sentiment fell in all US regions from a month earlier, notably in the West, where the index dropped 12 points to 36. The Northeast saw a 7-point decrease to 58.
