Homebuilder Sentiment Dips Despite Passage of Landmark Housing Bill To Boost Construction

Homebuilder sentiment swooned this month despite the passage of a major federal housing law designed to boost construction, as high costs and economic uncertainty continued to weigh on the industry.

Builder confidence in the market for newly built single-family homes dropped to 34 this month, down from a revised 36 in June, according to the National Association of Home Builders/Wells Fargo Housing Market Index released on Wednesday. Any reading below 50 reflects negative sentiment about the market.

The builder sentiment reading has now remained below 40 for 15 consecutive months, the longest such stretch since 2012.

Although homebuilders championed the landmark housing reform bill that passed Congress in June and became law last week, the package's complex provisions likely won't have an immediate impact on the market.

"The recently enacted 21st Century ROAD to Housing Act contains important provisions on land-use and zoning, regulatory reform and financing tools that address obstacles facing builders and buyers, but these reforms will take time to implement," says NAHB Chairman Bill Owens.

Sales of newly built homes remained sluggish this spring, as an oil shock from the Iran war sent mortgage rates higher, denting affordability.

Contract signings for new homes fell to a seasonally adjusted annual rate of 580,000 in May, down 7.3% compared to April, according to U.S. Census Bureau data. The May figure was also down 6.8% from a year ago.

“Many potential buyers remain on the sidelines as they wait for lower mortgage rates, more certainty on inflation and a clearer economic outlook,” says Owens.

NAHB Chief Economist Robert Dietz says that affordability remains the homebuilding industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market.

“Looking ahead, the newly enacted housing law is a positive step that will help expand housing supply and lower overall housing costs, although more policy change is needed at the state and local level,” says Dietz.

The survey data showed that 37% of builders cut prices in July, up from 35% in June and 32% in May. The average price reduction was 6% in July, the same rate as the previous month.

The use of sales incentives, such as mortgage rate buy-downs or closing cost discounts, was 63% in July, up slightly from 62% in June.

On a regional, three-month rolling average basis, the index for the Northeast rose 1 point to 45, the Midwest increased 2 points to 45, the South fell 1 point to 33, and the West dropped 1 point to 26.