Homebuilder Confidence Drops with Rising Rates and Economic Concerns

Rising mortgage rates and economic uncertainty push homebuilder confidence down to record-low levels.

An uncertain economy and rising mortgage rates are affecting consumers and, as a result, making it difficult for homebuilders nationwide. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), the builder sentiment score fell by 2 points from May to 32 in June.

A year ago, the index value was 43, in June 2024, and any number less than 50 denotes a negative sentiment. Experts believed that recent tariff negotiations and some pullbacks by the Trump administration may boost builder confidence and cause a minor improvement. Since 2012, only twice has the index been lower than June’s level: once in December 2022, when mortgage rates quickly rose after being very low during the pandemic, and again in April 2020, at the beginning of the pandemic. Three components comprise the index, and all three declined in June. Builders have noticed a slowdown: the number of potential buyers decreased to 21, the lowest level since late 2023, current sales dropped to 35, and expectations for the next six months sales fell to 40. 37% of homebuilders reported in a survey that they are lowering their pricing in June, the largest percentage of builders since NAHB began monitoring the monthly indicator three years ago. The percentage of respondents who said they had lowered pricing rose from 29% in April to 34% in May.

Stuart Miller, co-CEO of Lennar, stated that since mortgage rates are still high and people are feeling less confident about the economy, the company concentrated on building more homes and offering incentives to help buyers afford them. Over the past three months, builder confidence was lowest in the South and West, areas where the highest number of homes are being constructed.