US homebuilder confidence falls short of September forecasts

Prior month 35

US homebuilder confidence weakened more than anticipated in September.

• NAHB Housing Market Index: 32 versus 34 expected. Previous reading 35

September components compared with August:

• Current sales conditions: 35 against 39
• Sales expectations for the next six months: 37 compared with 43
• Traffic of prospective buyers: 23 unchanged from 23

Builder sentiment in the market for newly built single-family homes slipped three points to 32 in September, missing the market forecast of 34 and declining from 35 in August.

The underlying figures were also lackluster. The gauge of current sales conditions fell four points to 35, and the measure for sales over the coming six months dropped six points to 37. Prospective-buyer traffic held steady at a low 23.

Builders are leaning more heavily on discounts and other inducements to drive demand. The proportion of builders cutting prices rose to 38% from 35% in August. The average price reduction stayed at 6% for the sixth straight month.

At the same time, 66% of builders offered sales incentives, up from 63% in August and the highest share since the 67% reading in December. This indicates that affordability strains and elevated borrowing costs are still making it hard for builders to turn prospective buyers into completed sales.

Quick analysis: The report came in weaker than expected, but the sharp fall in six-month sales expectations is arguably the most troubling element. Builders are not just reporting soft current conditions; their confidence in the near-term outlook is also eroding.

The growing use of price cuts and sales incentives is another signal that demand remains under pressure. While discounting may eventually help improve affordability, it also shows that builders have to put in more effort to attract buyers.

For markets, softer housing data could provide marginal support for a less hawkish Federal Reserve outlook and would normally be slightly negative for the US dollar and Treasury yields. However, the NAHB report is typically a secondary market mover, especially with the Fed rate decision approaching.

What this report measures: The National Association of Home Builders/Wells Fargo Housing Market Index is a monthly survey of single-family homebuilders. Builders assess current sales, expected sales over the next six months and traffic from prospective buyers.

The headline index ranges from zero to 100. A reading above 50 means more builders view market conditions as good than poor, while a reading below 50 indicates predominantly negative sentiment. The report is watched as an early gauge of housing demand, residential construction and the impact of mortgage rates on buyer affordability.