Builder sentiment increases in September

After four straight months of declines, confidence in the market for new construction single-family homes is up two points. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose from 39 in August to 41 in September, representing increased confidence in the homebuilding market. 

The housing market index is determined by a monthly survey of single-family home builders regarding current and near-term housing outlooks. 

HMI ratings range from 0 (less optimism) to 100 (extremely confident) and rate three aspects of the housing market:

• Present sales of new single-family homes
• Expected sales of single-family homes for the next six months
• Traffic of prospective buyers of new single-family homes

All three HMI indices rose in September: Confidence in current sales conditions rose from 44 to 45, expectations for sales in the next six months added four points to 53, and confidence in prospective buyer traffic rose two points to 27 from 25 in August.

Lower interest rates have contributed to the increased confidence, even as construction costs outpace typical household budgets. In other promising news, the HMI survey shows that the share of builders who report cutting prices declined by a point to 32. They also report using fewer incentives, with 61% reporting incentive use in September versus 64% back in August. The average reduction in home price is below 6% for the first time since July 2022, at 5%. 

However, the increased confidence wasn’t shared equally across regions. In September, preliminary seasonally-adjusted HMI levels for the Northeast, Midwest, South, and West were 55, 42, 40, and 42, respectively.