Builder sentiment held steady at a low level in September, but optimism over future rate cuts from the Federal Reserve has improved the outlook for future sales expectations.
The September NAHB/Wells Fargo Housing Market Index (HMI) generated a reading of 32, the same as the August reading. Builder sentiment has hovered within a low range of 32 and 34 since May, though the tide is beginning to turn for future expectations. Rate cuts from the Federal Reserve could lead to a more favorable overall interest rate environment and entice hesitant buyers off the sidelines in the final months of 2025.
While builders continue to contend with rising construction costs, a recent drop in mortgage interest rates over the past month should help spur housing demand,” says NAHB chairman Buddy Hughes.
Despite expectations of better sales conditions in the future, the current sales environment remains challenging for builders. In a sign of market softness, the latest HMI revealed 39% of builders cut prices in September, the highest percentage in the post-COVID period. The use of sales incentives remained elevated, with 65% of builders utilizing such tools in September.
“NAHB expects the Fed to cut the federal funds rate at their meeting this week, which would help lower interest rates for builder and developer loans,” NAHB chief economist Robert Dietz says. “Moreover, the 30-year fixed rate mortgage average is down 23 basis points over the past four weeks to 6.35%, per Freddie Mace. This is the lowest level since mid-October of last year and a positive sign for future housing demand.”
The HMI gauges builder perceptions of current sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The survey also asks builders to rate traffic of prospective buyers. Scores for each component are used to calculate a seasonally adjusted index where any number over 50 indicates more builders view conditions as good than poor.
The HMI tracking future sales expectations in September rose two points to 45, the highest reading since March of this year. The component measuring current sales conditions held steady at 34 while the metric for traffic of prospective buyers posted a one-point decline to 21.
The three-month regional HMI average was unchanged at 44 and 29 in the Northeast and South, respectively, and up one point to 42 and 26 in the Midwest and West, respectively.
