With expectations for future sales now at their lowest since the early days of the pandemic, increasing economic uncertainty is weighing on consumer behavior. The National Association of Home Builders (NAHB) just announced a huge decline in its index, plunging to 32 in June. This represents a two-point drop since May. This deep drop speaks to the unprecedented pressures crushing the housing sector. Rising mortgage rates and uncertainty in consumer confidence are primary drivers of it.
Buddy Hughes, the newly installed NAHB chairman, is a homebuilder based in Lexington, North Carolina. He noted the major stressors from the current environment. He stated, “Buyers are increasingly moving to the sidelines due to elevated mortgage rates and tariff and economic uncertainty.” This feeling is shared throughout the industry as builders experience less buyer foot traffic and lower sales projections.
Present sales conditions declined two points to 35. At the same time, future sales expectations over the next six months fell two points, to 40. Buyer traffic fell to 21 — the lowest level ever reported since late 2023. The index hit 43 in June 2024, showing a significant reversal in market conditions.
Additionally, the NAHB data indicates that 37% of builders have reduced prices. That is the highest share ever reported since the organization began tracking this milestone three years ago. By contrast, 34% of builders lowered prices in May, which is an improvement from 29% in April. In fact, since late last year, the average discounting has been consistent at just 5%. This troubling trend underscores the deep, ongoing dilemma builders continue to face in drawing fresh buyers.
Since 2012, the index we use to gauge a recession has fallen below June’s level only twice. Those weaker readings came in December 2022 and in April 2020. That December decline occurred primarily due to the spike in mortgage rates. These rates jumped up from the historic lows we experienced in those first few years of the pandemic.
As Robert Dietz, chief economist at the NAHB, explained on Twitter, there are wider implications from such trends. He stated, “Rising inventory levels and prospective home buyers who are on hold waiting for affordability conditions to improve are resulting in weakening price growth in most markets and generating price declines for resales in a growing number of markets.”
Data showed that there were different patterns in different regions. Regionally, the South and West had the lowest builder sentiment as seen on the chart above measured on a three-month moving average. This variation is a reminder of how local economic conditions feed into national market conditions.
On the company’s strategy in the face of these headwinds, Lennar co-CEO Stuart Miller said the following on the company’s last quarterly earnings call. He remarked, “As mortgage interest rates remained higher and consumer confidence continued to weaken, we drove volume with starts while incentivizing sales to enable affordability and help consumers to purchase homes.”