As inflation eases—with the latest Consumer Price Index reporting the smallest annual increase since February 2021—builder confidence continues to steadily rise, according to the latest National Association of Home Builders (NAHB) data.
The NAHB/Wells Fargo Housing Market Index (HMI) registered at 43 in October, up two points from September’s reading and now four points above August’s recent low point (since December 2023). This is now the second consecutive month of increases, breaking a four-month streak of drops through the summer—a six-point drop in May, a two-point fall in June, a one-point decrease in July and another two-point fall in August.
“While housing affordability remains low, builders are feeling more optimistic about 2025 market conditions,” said NAHB Chairman Carl Harris in a statement.
Mortgage rates, which fell sharply this autumn as the Fed began cutting interest rates, have rebounded in the last two weeks, with NAHB Chief Economist Robert Dietz saying that some buyers are still on the sideline waiting for more drops.
Harris added that the 2024 presidential election remains a “wild card” for the housing market, with “housing policy a top-tier issue for candidates, policymakers should be focused on supply-side solutions to the housing crisis.”
All three HMI indices also grew in October. The index charting current sales conditions rose two points to 47, the component measuring sales expectations in the next six months increased four points to 57, and the gauge charting traffic of prospective buyers posted a two-point gain to 29.
While confidence continued to increase, the share of builders cutting prices held steady from September to October at 32%. Meanwhile, the average price reduction increased, returning to the long-standing trend of 6% (after seeing a drop to 5% last month). The use of sales incentives also grew 1% in October, to 62%.
“We are forecasting uneven declines for mortgage interest rates in the coming quarters,” continued Dietz, “which will improve housing demand but place stress on building lot supplies due to tight lending conditions for development and construction loans.”
CoreLogic Chief Economist Dr. Selma Hepp pointed out that despite bettering market signs, that it’s important to remember the “enduring challenges” of builders across the home construction industry.
“For example, the price of building materials is increasing again, following a period of dropping after the pandemic, with Miami and Dallas leading the way in spiking construction costs,” she continued. “That said, home sales expectations are growing, so homebuilders can confidently anticipate property demand will outstrip supply for years to come.”
Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 51, the Midwest moved two points higher to 41, the South held steady at 41 and the West increased three points to 41.
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