Home Builder Confidence Reaches 5-Year Low in August

Home builders lose optimism

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 August.

Home builder confidence falls

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 August, builder confidence declined to a score of 32, down from 33 in July and 39 year-over-year. It matches the lowest index score since April 2020.

“Affordability continues to be the top challenge for the housing market and buyers are waiting for mortgage rates to drop to move forward,” said Buddy Hughes, chairman at NAHB. “Builders are also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes.”

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

The three index components experienced mixed results month-over-month. Current sales decreased to 35 from 36, sales in the next six months held at 43, and prospective home buyer traffic rose to 22 from 20.

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 24 in the West.

“Housing affordability is central to the outlook for economic growth and inflation,” said Robert Dietz, chief economist at NAHB.

What other indicators of housing inventory say

In July, active home listings increased 24.8% annually to a total of 1.103 million, according to Realtor.com.

Among the 50 largest cities in the U.S., Las Vegas saw a 65.7% yearly jump in active listing count, trailed by 56.5% in Washington, D.C. and 45.4% in Raleigh, N.C. Grand Rapids, Mich., experienced the smallest annual gain of 1.8%. Chicago and New York City followed with growths of 5.4% and 94%, 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 1.397 million in June. That figure increased 0.2% month-over-month but fell 4.4% year-over-year.

Next, housing starts reached a SAAR of 1.321 million, up 4.6% monthly and down 0.5% annually. Lastly, a SAAR 1.314 million houses were completed in June, 14.7% lower than May and 24.1% below June 2024.

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.