Home construction stocks fell on Monday after the closely watched Housing Sentiment Index rose for the fourth straight month due to high mortgage rates.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for April was 51, unchanged from March. Indeed, numbers above 50 indicate that more builders consider conditions to be good rather than bad.
“April's flat data suggests there is potential for demand growth, but buyers are holding out until they get a better idea of where interest rates are headed,” NAHB chief economist Robert Dietz said in a statement. “There is,” he said.
Lennar (LEN), Pulte (PHM) and Toll Brothers (TOL) were all down more than 1% by mid-morning, while the SPDR S&P Home Builders ETF (XHB) was down 0.3%.
The flat confidence level among builders underscores the status quo among many prospective buyers and sellers, who are already dealing with high home prices and limited housing inventory. This comes after stronger-than-expected inflation last week prompted investors to scale back the number of interest rate cuts this year to two, fewer than the median of three the Fed expected at its March meeting. That's what it means.
Dietz said, “The market is adjusting interest rates slightly higher in response to recent inflation data, but the US Federal Reserve (Fed) will announce future interest rate cuts later this year, and mortgage rates will rise in 2024. We expect the situation to ease in the second half of the year.”
Mortgage rates remain slightly higher than they were at the beginning of the year, leaving borrowers on the sidelines just as the spring home buying season gets into full swing. Freddie Mac reported that the average 30-year fixed mortgage rate rose to 6.88%, up from 6.82% the previous week.
In April, builders slightly reversed their home price reductions, with 22% of builders reporting they had implemented price cuts, down from 24% in March last year and 36% in December.
Meanwhile, the utilization rate of sales incentives fell from 60% in March to 57% in April.
