Home Buying: Builders’ Pain Could Be Buyers’ Gain

By: Anneken Tappe · September 26, 2023 · Reading Time: 3 minutes

Bearish Builders

This past Wednesday, the Federal Reserve decided to leave its benchmark interest rate unchanged. Policy officials also said they expect to hike rates once more before the end of the year. The news also weighed on Wall Street, causing major averages to close lower on the week.

The sour sentiment is affecting specific sectors as well. With average 30-year fixed-rate mortgage rates remaining above 7%, home builder confidence fell in September to 45, following a six-point drop in August to 50.

Perfect Storm

Home builder confidence, measured by sentiment across the single-family housing market, fell for the first time in five months in September. It’s not just interest rates. Builders are also contending with a construction worker shortage, and a lack of buildable lots. Materials to build homes have also increased, and rising insurance costs are threatening the sector as well.

On the demand side of the equation, stubbornly high mortgage rates are also affecting consumers.

Buyers’ Silver Lining

While home builders are feeling pessimistic, there might be a silver lining for buyers.

In September, 32% of home builders said they reduced their prices, the largest share since last December, and up from 25% in August. Price reductions are coming in at 6% on average. Moreover, almost 6 in 10 home builders are providing sales incentives, from material upgrades, warranties, or covering closing costs.

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