Homebuilder stocks took a hit on Monday as the housing market sentiment index remained flat for the month of April, breaking a four-month streak of gains. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) held steady at 51, indicating that more builders view conditions as good rather than poor.
The lack of growth in sentiment was attributed to potential buyers hesitating due to uncertainty surrounding interest rates. NAHB chief economist Robert Dietz noted that while there is potential for demand growth, buyers are waiting to see where rates are headed before making a move.
Major homebuilders such as Lennar, Pulte, and Toll Brothers saw their stocks drop by more than 1% mid-morning, while the SPDR S&P Homebuilders ETF (XHB) was down 0.3%. This decline in confidence among builders reflects the trend of prospective buyers and sellers staying put in the face of high home prices and limited housing stock.
The recent uptick in mortgage rates has further dampened buyer enthusiasm, with the average rate on a 30-year fixed mortgage rising to 6.88%. This has led to borrowers holding off on purchasing homes just as the spring homebuying season begins.
Despite the current challenges in the housing market, builders have slightly reduced the number of price cuts on homes, with 22% reporting doing so in April compared to 24% in March. Additionally, the use of sales incentives has decreased to 57% in April from 60% in March.
Looking ahead, Dietz anticipates that the Federal Reserve will announce future rate cuts later this year, which could help moderate mortgage rates in the second half of 2024. This could potentially provide a boost to the housing market and encourage more buyers to enter the market.
