Key Takeaways
- Homebuilder confidence slipped further in July, dropping to its lowest since December.
- Builders were down about their current sales and traffic but feel more optimistic about the outlook.
- The Federal Reserve is expected to cut interest rates in the fall, which would help lower mortgage rates.
- Homebuilder stocks rallied Tuesday on hopes of an imminent rate cut.
Homebuilder confidence remained subdued in July, dropping to its lowest reading since December as high borrowing costs weighed on sentiment.
The National Association of Home Builders‘ index of confidence came in at 42 in July, down a point from the prior month—a reading that shows a majority of builders believe the market is in poor condition. Economists were expecting the index to move up one point instead, according to a survey of economists by the Wall Street Journal and Dow Jones Newswires.
Rate Cut Hopes Brighten Outlook
Homebuilders were down on their current sales and traffic of prospective buyers. However, they were slightly more optimistic about expected sales in the next six months.
High mortgage rates have discouraged potential buyers, as high borrowing costs pressure housing affordability. The average rate on a 30-year fixed-rate mortgage is still hovering near 7%, but homebuilders are hoping that interest rate cuts from the Federal Reserve can change that.
“While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing,” said NAHB Chairman Carl Harris.
The central bank’s influential fed funds rate and traders’ expectations of it affect the trajectory of mortgage rates.
Investors seem to think that trajectory is on the right track, as homebuilder stocks rallied on that same optimism Tuesday. Shares of D.R. Horton (DHI), Toll Brothers (TOL), PulteGroup (PHM), KB Home (KBH) and Lennar Corporation (LEN) all traded more than 3% higher.