Homebuilder sentiment declined to 34 in November as mortgage rates rose for most of the month according to a survey by the National Association of Homebuilders (NAHB). Anything below 50 is indicative of poor sentiment, however there was some optimism that the recent decline in rates may lead to an improvement in conditions. 

Higher rates have stifled demand and increased the cost of financing for homebuilders and developers. Another headwind has been low inventories, resulting in less transactions. Overall, the survey results declined from 56 in July to its current level. However, the survey does not reflect the recent decline in rates following the soft October CPI report. 

All three components of the survey showed weakening with sales conditions falling 6 points to 40, sales expectations over the next 6 months dropping to 39 from 45, and buyer traffic declining from 26 to 21. 

According to Robert Dietz, NAHB’s chief economist, “While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months. In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%.” He believes that a decline in rates, coupled with low inventories, could set the stage for a rebound in sentiment. 

Finsum: November’s homebuilder sentiment survey report came out and showed a major decline. However, there is some optimism that the recent decline in rates could lead to a rebound in sentiment in the coming months.