Confidence among US home builders rose in September for the first time in six months, just before the Federal Reserve is expected to cut interest rates from the current two-decades high.
A gauge of housing market conditions from the National Association of Home Builders and Wells Fargo climbed 2 points to 41 this month, matching the median estimate of economists surveyed by Bloomberg. All regions saw an increase.
Measures of prospective-buyer traffic and present sales rose off their 2024 lows. And an outlook index for the next six months increased 4 points to 53, its biggest gain since January.
“With inflation moderating, the Federal Reserve is expected to begin a cycle of monetary policy easing this week, which will produce downward pressure on mortgage interest rates and also lower the interest rates on land development and home construction business loans,” NAHB Chief Economist Robert Dietz said in a prepared statement.
Shares of builder stocks have been soaring, largely in anticipation of falling interest rates, according to Bloomberg Intelligence analyst Drew Reading. Lennar Corp. is trading at record levels ahead of its earnings report later this week, as is the iShares U.S. Home Construction exchange-traded fund, comprised of builders and related firms.
The anticipated interest rate cut by the Fed this week is expected to help bring down mortgage rates over coming months. Home borrowing costs have already fallen to their lowest levels since February 2023 ahead of the Fed’s move, and the Mortgage Bankers Association sees the 30-year fixed rate dropping to 5.9% by the end of 2025 from 6.29% currently.
Builders have said customers are taking a wait-and-see approach to buying, partly as they wait for lower borrowing costs and partly because of uncertainty over the US presidential election, Reading wrote in a research note last week. Home sales typically rise in the year after a presidential election, he said.
The share of builders cutting prices fell to 32% this month, down from 33% in August, according to NAHB. The average price reduction also decreased, to 5%, the first time it’s been below 6% since July 2022. And, the share of builders that reported using sales incentives declined as well.
Data releases this week will provide further insights into the housing industry during August, with housing starts from the government on Wednesday and existing-home sales from the National Association of Realtors on Thursday.
