Builder-confidence index stalls in April as mortgage rates hit 7%. Buyers are 'back on the fence waiting for interest rates to fall,' one builder says.

By Aarthi Swaminathan

Builders still expect the Federal Reserve to cut rates, which will bring back demand

The numbers: Builder confidence was unchanged in April, as the 30-year mortgage rate crossed 7% and dulled demand.

A strong inflation report prompted the market to expect delayed interest rate cuts by the Federal Reserve, which in turn pushed up mortgage rates. The 30-year was at 7.3% as of April 12, according to Mortgage News Daily.

Higher rates typically spook buyers, which is reflected in builders' confidence in the market.

Though demand is strong overall, builders expect a dip in sales over the next six months due to the higher rates, which left the National Association of Home Builders' (NAHB) monthly confidence index unchanged, at 51 points in April, the trade group said on Monday.

To be sure, outside of the previous month, the index is still at the highest level since July 2023, indicating that builders expect demand to bounce back fairly quickly.

The April figure matched economists' expectations on Wall Street.

A year ago, the index stood at 45.

Key details: Builders are scaling back incentives, such as cutting prices, to entice home buyers.

About 22% of builders cut prices in April, the NAHB said, down from 24% in March. The average price cut was 6%.

And fewer builders were using sales incentives - other than price cuts - to improve sales in April, down to 57% from 60%.

The three gauges that underpin the overall builder-confidence index were mixed.

Builders were upbeat about current sales conditions. The gauge rose 1 point.Builders see a steady stream of traffic from prospective buyers. The gauge rose by 1 point. They were downbeat about future sales. The gauge fell by 2 points.

Big picture: The return to 7% mortgage rates will likely be a speed bump for the housing market amid spring home-buying season. Buyers will find it less affordable to buy homes, which sap sales activity.

But the silver lining is that housing inventory is on the rise, which should entice some house hunters. Newly listed home sales are up 30% from a year ago, as of April 11, Realtor.com said, which is the highest jump in three years.

Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch publisher Dow Jones is also a subsidiary of News Corp.

What the NAHB said: "April's flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed," Robert Dietz, chief economist at the NAHB, said in a statement.

He added that the NAHB still expects the Fed to cut rates later this year, and for mortgage rates to drop as a consequence in the second half of 2024.

But "with many frustrated buyers back on the fence waiting for interest rates to fall, policymakers can help ease affordability challenges by reducing inefficient regulatory rules that raise housing costs and limit supply," added Carl Harris, a custom home builder from Wichita, Kan. and the chairman of the NAHB.

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

04-15-24 1000ET

Copyright (c) 2024 Dow Jones & Company, Inc.