By Safiyah Riddle
(Reuters) - U.S. home builder confidence weakened in August for the first time this year, according to a report released Tuesday, as record-breaking mortgage rates and still-high housing prices discouraged prospective buyers.
The National Association of Home Builders/Wells Fargo Housing Market Index retreated to 50 in August from a 13-month peak of 56 in July. Builder confidence was largely undermined by a drop in prospective buyer traffic, which fell to 34 in August
from a year-long high of 40 in July. Economists polled by Reuters expected builder confidence to remain unchanged at 56.
Builder confidence swelled in the first half of the year as demand for new homes was propped up by a dearth of existing homes on the market, despite the Federal Reserve's 525 basis-points worth of interest rate hikes since March 2022 that pushed mortgage rates past 7% last month. Many current home owners are locked into low mortgage rates, and have been reluctant to put existing homes on the market amidst expensive financing options.
A quarter of all builders cut prices to bolster sales in August, the first increase since March. On top of that, builders' sales expectations for the next six months fell to 55 from 59 in July, suggesting the share of builders cutting prices could increase further to incentivize buyers. More widespread price cuts would be welcome news for the U.S. central bank's campaign to tame inflation.
“Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%. The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units.” said NAHB chief economist Robert Dietz.