The National Association of Home Builders (NAHB) reported an unexpected decline in U.S. homebuilder confidence in May, influenced by higher mortgage rates impacting sentiment.
The NAHB/Wells Fargo Housing Market Index fell to 45 in May from 51 in April, contrary to economists' expectations that it would remain unchanged.
This marks the first drop in homebuilder confidence since November 2023, as mortgage rates have averaged over 7 percent for the past four weeks, according to Freddie Mac data.
“A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter, which is dampening builder sentiment,” said NAHB Chief Economist Robert Dietz. He added, “Reducing shelter inflation is the final leg of the inflation fight, and this can only be achieved if builders can construct more attainable, affordable housing.”
The decline in the housing market index was driven by decreases across all three component indices. The component measuring sales expectations for the next six months plummeted to 51 in May from 60 in April. The index reflecting current sales conditions dropped to 51 from 57, while the gauge of prospective buyer traffic fell to 30 from 34.
The NAHB survey also revealed that 25 percent of builders reduced home prices in May to help boost sales, ending a four-month trend of declining price cuts.
The Commerce Department is set to release a separate report on new residential construction in April on Thursday. Expectations are for housing starts to rebound to an annual rate of 1.420 million in April, up from 1.321 million in March, and for building permits to increase to an annual rate of 1.480 million from 1.458 million in March.
