Officials for the National Association of Home Builders (NAHB) said a lack of affordability and buyer hesitation led to a decline in builder sentiment in August, but the root causes include elevated interest rates and high home prices, they added. The surmise comes from the most recent NAHB/Wells Fargo Housing Market Index (HMI), which showed that builder confidence in the market for newly built single-family homes was 39 in August. That’s down two points from a downwardly revised reading of 41 in July. It’s also the lowest reading since December 2023.
There may be help coming from the White House. On August 13, the Biden-Harris Administration announced new actions that are intended to reduce barriers to housing construction.
“Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness,” said NAHB chairperson Carl Harris, a custom home builder from Wichita, Kansas. “The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”
Almost three-quarters of the responses to the August HMI were collected during the first week of the month when interest rates averaged 6.73%, according to Freddie Mac. Mortgage rates declined notably the following week to 6.47%, the lowest reading since May 2023.
“With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,” said NAHB chief economist Robert Dietz.
The August HMI survey also revealed that 33% of builders cut home prices to bolster sales in August. That’s more than the July rate of 31% and the highest share in all of 2024. However, the average price reduction in August held steady at 6% for the 14th straight month.
Meanwhile, the use of sales incentives increased to 64% in August from 61% in July, the highest level since April 2019.
One of the actions taken by the Biden-Harris Administration includes the U.S. Department of Housing and Urban Development (HUD)’s Pathways to Removing Obstacles to Housing (PRO Housing) grant program. The program is designed to support state and local governments in removing barriers to affordable housing, including reforming the permitting process for new homes.
While permitting is primarily a state and local issue, the Biden-Harris Administration is encouraging these levels of government to reduce barriers and build more. White House spokespeople note that, while some permitting requirements serve an important purpose by ensuring structural, electrical, plumbing, and mechanical safety and environmental protection, some permitting has become “unnecessary and onerous,” in turn contributing to housing shortages and housing unaffordability across the country. The current presidential administration points to permit requirements directly increasing soft costs, administrative burdens, uncertainty, and delays which contribute to the increasing cost of building new homes.
In June, PRO Housing awarded its first $85 million in grants to 21 communities across the country, including states, big cities, and smaller towns. Last week, HUD announced an additional $100 million in grants. Additionally, HUD and the U.S. Department of the Treasury announced new actions to provide more interest rate certainty for state and local Housing Finance Agencies (HFAs) that use the Federal Housing Administration’s (FHA) risk sharing initiative with the Federal Financing Bank to finance new construction of affordable housing.
The whole-of-government effort is outlined in a White House fact sheet, which highlights HUD’s latest actions to increase the construction of affordable new homes.
“Let’s face it – we don’t have enough affordable homes. Here at HUD, we are making changes to build new, quality, affordable homes like never before,” said HUD acting secretary Adrianne Todman. “Today, alongside our colleagues at the Department of the Treasury, we are announcing a crucial move that will enable our partners to use our financing to build tens of thousands more rental homes for the families we serve.”
FHA and the Federal Financing Bank will implement a floor and a cap, called an interest rate “collar,” on the benchmark Treasury rate used to calculate the all-in rate provided to Housing Finance Agencies. HUD officials say this update to the Section 542(c) Housing Finance Agency Risk-Sharing Initiative will make it easier to use the program, thereby increasing the number of new, affordable multifamily properties that can be developed using risk-sharing program financing.
“The Biden-Harris Administration knows the key to reversing the affordable housing crunch is to take actions that increase housing supply. The Treasury-HUD rate collar initiative will help reduce the cost to construct more affordable housing that is so urgently needed in neighborhoods across the country,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo. “Treasury will continue to do everything in our power to make housing more affordable for Americans and unlock greater economic prosperity.”