Key takeaways
- A monthly survey from the National Association of Home Builders reported a four-point decline in homebuilder sentiment.
- Builder sentiment gauges homebuilders' national outlook for current and future sales of newly built single-family homes.
- The association and builders point toward impacts from the Iran war as dragging the market down.
Homebuilders nationwide are reporting increases in building material costs due to the Iran war, which is pushing their confidence in new single-family home sales downward.
Builder sentiment dropped four points to 34 this month, according to a monthly survey conducted by the National Association of Home Builders trade group. Sentiment gauges builders’ perspectives on current and future sales of newly built single-family homes; readings below 50 are considered negative.
April’s sentiment hit its lowest level since September, when the reading was 32. This is now the 24th consecutive month that builders have reported a negative market outlook.
Builders said the Iran war, increasing energy costs and declining consumer confidence were the main factors dragging confidence down, according to the NAHB.
“With oil prices higher in the U.S., 62% of builders reported suppliers have increased building material costs due to higher fuel prices, including gas and diesel,” NAHB Chief Economist Robert Dietz said in a statement. “Energy costs make up approximately 4% of residential construction material input and service costs. With near-term economic risks elevated, 70% of builders reported challenges pricing homes given uncertainty about material costs.”
Material costs and lending rates have been factors dragging down home demand over the past several years as home prices have climbed, limiting buyers' purchasing power.
Federal data showed that building material prices grew by 3% in January, a continuing trend now exacerbated by higher oil prices. Tariffs in the past year also impacted some builders’ costs and confidence.
Mortgage rates pressure sales
Mortgage rates also climbed for five consecutive weeks due to the Middle East conflict, dropping for the first time last week to 6.37% for a 30-year, fixed-rate mortgage. Mortgage rates were about the same in September, the last month when confidence was nearly as low.
Last week, the U.S. Department of Labor reported an annual inflation rate of 3.3%, including the largest monthly increase in the energy index since 2005. The same day, consumer confidence tumbled 11%.
This all comes at the busiest time for homebuying and selling, the spring market. National homebuilder KB Home stated in its March earnings call that the Iran war appeared to have stymied sales at the end of February, when the conflict began.
“The last couple of weeks have been a little softer than what we would like to see or what we normally get this time of year,” said CEO Rob McGibney on the call. “We just don't have a lot of visibility right now, as I don't think anybody does, into how long this conflict may go on and how it's going to impact consumer psyche and confidence. We feel that right now it's weighing on the consumer.”
The CEO also reported layoffs of 10% of its workforce to improve costs on the same call and changed its outlook on home sales for the year.
Fewer homebuilders nationwide reported cutting home prices and offering sales incentives, two strategies they have regularly used since mortgage rates and home prices rose dramatically after the pandemic.
The monthly survey found that 36% of builders had cut prices in April, a 1% decline, and that 60% offered incentives, ranging from free design upgrades to mortgage buydowns, a 4% decline from March.
The average price reduction on a home was 5%, a 1% decline from the previous month.