Homebuilder stocks took a hit on Monday as the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) broke a four-month streak of gains, staying flat at 51 in April. This lack of growth in housing sentiment comes amid high mortgage rates, causing potential buyers to hesitate.
NAHB chief economist Robert Dietz noted that while there is potential for demand growth, buyers are waiting to see where interest rates are headed before making a move. This uncertainty has led to a decrease in confidence among builders, with Lennar, Pulte, and Toll Brothers all seeing their stocks drop by more than 1% mid-morning.
The SPDR S&P Homebuilders ETF (XHB) was also down 0.3% as the housing market continues to face challenges. With high home prices and limited housing stock, many prospective buyers and sellers are choosing to stay put, further impacting the market.
The recent inflation print has prompted investors to adjust their expectations for rate cuts, with the Federal Reserve now projected to announce only two cuts this year instead of the previously anticipated three. Dietz believes that mortgage rates will moderate in the second half of 2024, providing some relief to potential buyers.
However, mortgage rates have remained slightly higher compared to the beginning of the year, reaching 6.88% for the 30-year fixed rate. This increase has led to borrowers stepping back from the market, just as the spring homebuying season begins.
Despite the challenges, builders have pulled back slightly on cutting home prices, with fewer reporting price cuts in April compared to previous months. Additionally, the use of sales incentives has decreased slightly, indicating a potential stabilization in the market.
Overall, the housing market is facing a period of uncertainty as buyers and sellers navigate high mortgage rates and limited inventory. With the Federal Reserve expected to announce rate cuts later this year, there is hope for some relief in the market in the coming months.
