Thanks to falling mortgage rates, homebuilders felt a bit less dismal about the housing market in September.
The National Association of Home Builders’ sentiment index rose to 41 in September from 39 in August, breaking a four-month streak of declines but remaining well below the 50 level that indicates most builders feel optimistic about the near-term outlook for the market.1
Falling mortgage rates over the last few months have helped boost the homebuilding outlook, though builders are still pessimistic about customers’ ability to afford to buy houses.
Mortgage Rates Continue to Dip
According to Freddie Mac, the average rate offered for a 30-year fixed mortgage was 6.2%, down more than a percentage point since May.2 Rates have been pushed down by expectations in financial markets that the Federal Reserve is preparing to cut its influential fed funds rate this week.
Despite the recent downtick, mortgage rates are still well above the rock-bottom lows they hit during the pandemic, and a lack of available homes for sale has kept prices hot for new and previously owned homes. Buyers with typical incomes struggle to afford the houses they want between high rates and high prices. On top of that, builders face rising construction costs, the association said.
Homebuilders Optimistic About The Future
Builders expect things to improve in the coming months as the Fed cuts rates. An index of builders’ expectations for future business rose to 53 from 49 in August, entering positive territory.
“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” NAHB Chairman Carl Harris said in a prepared statement. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions.”
