Shares of homebuilders fell Monday after a closely watched housing confidence index broke a four-month streak of gains amid high mortgage rates.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) remained at 51 in April, unchanged from March. Certainly, any number above 50 indicates that more builders view conditions as good than poor.
“April’s steady reading suggests potential for demand growth exists, but buyers are holding off until they can better gauge where interest rates are headed,” said Robert Dietz, economist. chief of the NAHB, in a press release.
Lennar (LEN), Pulte (PHM), and Toll Brothers (TOL) were all down more than 1% as of mid-morning, while the SPDR S&P Homebuilders ETF (XHB) was down 0.3%.
The low level of builder confidence highlights how many potential buyers and sellers, already facing high house prices and limited housing stock, are staying put. This comes after a higher-than-expected inflation reading last week prompted investors to reduce the number of rate cuts planned this year to two, fewer than the median of three projected by the Fed at its meeting Of March.
“While markets are now adjusting to slightly higher rates due to recent inflation numbers, we still expect the Federal Reserve to announce future rate cuts later this year and mortgage rates to moderate at second half of 2024,” Dietz said.
Mortgage rates remained slightly higher than earlier in the year, pushing borrowers out of the way just as the spring home-buying season gets underway. The average 30-year fixed mortgage rate increased to 6.88%, up from 6.82% the previous week, Freddie Mac reported.
In April, builders backed away slightly from reducing house prices, with 22% saying they had done so, compared to 24% in March and 36% in December last year.
At the same time, the use of sales incentives fell to 57% in April, compared to 60% in March.
