Home builders are worried about a worsening housing market as high mortgage rates slow new home sales.
The National Association of Home Builders/Wells Fargo Housing Market Index fell 1 percentage point to 42 in July from the previous month, the lowest level since December. The July reading was below economists’ expectations of 43, according to Bloomberg data.
A reading below 50 indicates that more builders consider the condition to be poor than good.
High borrowing costs are keeping both potential buyers and sellers on the sidelines, and new home sales fell to a six-month low in May, according to the latest Census Bureau data.
Mortgage rates have been hovering around 7% this year, with the national average for a 30-year fixed-rate mortgage falling to 6.89% from 6.95% last week, Freddie Mac reported.
But there are signs that inflation is easing, raising the possibility that the Federal Reserve will cut interest rates sooner. Data released last week showed that the Consumer Price Index fell 0.1% from the previous month and rose just 3% from a year earlier in June, slowing from May’s flat monthly growth and 3.3% annual price growth.
As of Tuesday, markets were widely expecting a rate cut in September.
“Inflation remains above the Federal Reserve’s 2% target, but appears to be subsiding again. NAHB expects the Fed to begin cutting interest rates at the end of the year, a move that will lower interest rates for homebuyers, builders and developers,” NAHB chief economist Robert Dietz said in a press release. “While housing inventory is increasing, overall market inventory remains short at 4.4 months, indicating a need for more homebuilding in the longer term.”
In fact, an index showing sales expectations for the next six months showed a positive result in the latest survey, rising one point to 48.
Rising mortgage rates and soaring home prices have forced homebuilders to lower prices and offer incentives to buyers, such as lower mortgage rates. NAHB data show that 31% of homebuilders lowered prices to boost home sales in July, up from 29% in June.
The average price reduction remained steady at 6 percent for the 13th straight month. The percentage of builders using sales incentives also remained steady at 61 percent in July, according to the NAHB report.
Dani Romero is a reporter for Yahoo Finance. Follow him on Twitter. Dani Romero TV.
Click here for the latest economic news and indicators to help inform your investment decisions.
Read the latest financial and business news from Yahoo Finance