Home Builder Confidence Holds at 5-Year Low in September

Home builders pessimistic

The supply of inexpensive for-sale housing, and lack thereof, is perhaps the biggest detriment to home buyers today.

Due to its cascading effect, the inventory scarcity drives up competition and then, prices. But could help be on the way?

For-sale properties are on the rise, but a leading indicator of housing inventory held near depressed levels in September.

Home builder confidence remains low

Home builder sentiment ebbs and flows based on consumer demand, market conditions, shifting costs and supply chain status.

Every month, the National Association of Home Builders (NAHB) and Wells Fargo survey NAHB members to measure this sentiment on a 0-100 scale in their Housing Market Index (HMI) report. The survey comprises three components for single-family housing: current home sales, home sales over the next six months, and traffic of prospective buyers.

In September, builder confidence held at a score of 32 from August and fell from 41 year-over-year. It matches the lowest index score since April 2020.

“While builders continue to contend with rising construction costs, a recent drop in mortgage interest rates over the past month should help spur housing demand,” said Buddy Hughes, chairman at NAHB.

The table below shows the HMI scores from the last 12 months:

The three index components experienced mixed results month-over-month. Current sales held at 34, sales in the next six months rose to 45 from 43, and prospective home buyer traffic dipped to 21 from 22.

Broken down regionally, home builders in the Northeast had the most optimism with a three-month moving average score of 44. Next came HMIs of 42 in the Midwest, 29 in the South, and 26 in the West.

“NAHB expects the Fed to cut the federal funds rate at their meeting this week, which will help lower interest rates for builder and developer loans,” said chief economist Robert Dietz.

What other indicators of housing inventory say

In August, active home listings increased 20.9% annually to a total of 1.099 million, according to Realtor.com.

Among the 50 largest cities in the U.S., Washington, D.C. saw a 54.7% yearly jump in active listing count, trailed by 48.2% in Las Vegas and 42.3% in Raleigh, N.C. Chicago experienced the smallest annual gain of 2.5%. Minneapolis and Grand Rapids, Mich., followed with growths of 4.9% and 5.4%, respectively.

For a look ahead, the Census Bureau and Department of Housing and Urban Development put out a joint Monthly New Residential Construction Report, with three leading indicators of housing inventory.

First, building permits hit a seasonally adjusted annual rate (SAAR) of 1.312 million in August. That figure decreased 3.7% month-over-month and 11.1% year-over-year.

Next, housing starts reached a SAAR of 1.307 million, down 8.5% monthly and 6% annually. Lastly, a SAAR 1.608 million houses were completed in August, 8.4% higher than July but 8.4% below August 2024.

“Housing affordability is hurting buyer traffic for builders, and as a result builders have slowed single-family home construction,” said Buddy Hughes, chairman of the National Association of Home Builders.

The bottom line for home buyers

Between low affordability and not enough listings, home buying has been challenging for prospective borrowers.

If you’re a house hunter, it’ll be helpful to grab every advantage you can. Always be prepared so you can move fast, negotiate your mortgage rate, and see if you qualify for down payment and/or closing cost assistance.

If you’re ready to take the next step to homeownership, reach out to a local mortgage professional.