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Homebuilder Confidence Slides, Global Concerns Over Banking Woes Fade, Some Construction Costs Spike

Homebuilder Confidence Slides, Global Concerns Over Banking Woes Fade, Some Construction Costs Spike

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Homebuilder Confidence Slides

Persistent high mortgage rates sent homebuilder confidence into negative territory for the first time in five months, according to the latest survey by the National Association of Home Builders.

The trade group’s monthly index of single-family builder sentiment, based on national surveys conducted with researchers at Wells Fargo, registered at 45 for September. Numbers below 50 generally signal negative outlooks among builders for their business prospects in the months ahead.

NAHB Chairman Alicia Huey said builder confidence has been in particular decline during the past two months, coinciding with 30-year mortgage rates jumping above 7% and eroding buyer purchasing power. “And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes,” Huey said in a statement Monday.

Robert Dietz, the trade group’s chief economist, said mortgage rates now at 20-year highs “are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower.”

To get apartment renters and other prospective buyers off the sidelines, more builders are reducing home prices to bolster sales. The trade group’s September survey showed 32% of single-family builders reporting cutting prices for new homes, compared with 25% in August and the largest share of builders deploying discounts since December 2022. The average discount remains at 6%.

A recent buyer-focused survey by the National Association of Realtors found high mortgage rates and lack of affordably priced homes as the top barriers to buying by nearly a quarter of respondents. Those two factors have created “the most difficult affordability conditions in nearly 40 years,” NAR Deputy Chief Economist Jessica Lautz said in a statement Sept. 14.

Global Concerns Over Banking Woes Fade

Business sentiment has recovered from banking system-related failures that surfaced earlier this year, with corporate leaders now more confident that a severe global recession can be avoided at least through the end of 2024, according to analysts at Oxford Economics.

The research firm said Monday its Global Business Sentiment Index registered at 98 for September, up from 97.6 in July and the highest level since the start of 2023. Oxford queries business leaders worldwide on several metrics, with a score of 100 indicating that global gross domestic product, on average, is expected to reach the same level in a year’s time as anticipated before the pandemic.

“The latest results confirm that the hit earlier this year to sentiment from banking strains has fully unwound,” Oxford Economics analyst Jamie Thompson said in a statement, noting sentiment now points to a softer landing than was anticipated earlier this year amid failures by several banks.

“Businesses, on average, expect the relatively subdued pace of growth this year to continue next year,” Thompson said.

Based on surveys conducted Sept. 4-13, the research firm said businesses now see only a 1-in-50 chance of 2024 global growth turning out as weak as in 2009 during the worldwide financial crisis.

Some Construction Costs Spike

Costs for diesel fuel used to power trucks and construction equipment rocketed more than 40% in August from month-earlier levels, creating by far the biggest among several challenges facing builders when it comes to procuring necessary materials for projects.

“The steep climb in diesel prices since July is a reminder that construction cost worries have not gone away,” Ken Simonson, chief economist for the Associated General Contractors of America trade group, said in a statement.

Citing the latest producer price numbers from the Labor Department, the contractor group and National Association of Home Builders said diesel fuel was the biggest contributor to an overall rise in construction material costs. Those overall costs in August were up 0.1% for the month and 0.2% over the past year, though annual price growth was down considerably from 4.9% in January 2023 and 14.7% in August 2022.

On a monthly basis, government data showed construction material costs rising at a rate lower than the 2% increase for all producer costs in the U.S. economy. That was the largest overall monthly increase in more than a year and was driven largely by a 10.5% rise in energy prices, including a spike of about 20% for gasoline and 41% for diesel fuel.

The NAHB noted the August increase for diesel fuel was the highest monthly rise since 1990. With regional variations, national price increases have slowed for other materials including ready-mix concrete, which rose 0.6% in August. Categories showing monthly declines included gypsum building materials at 0.4%, steel mill products at 0.5% and softwood lumber at 5.3%.

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