The National Association of Home Builders' housing market index dropped to 34 in July, marking the 15th consecutive month it has stayed below 40. Elevated mortgage rates and climbing construction costs are keeping potential buyers on the sidelines and putting pressure on builders.
The Toll of Elevated Borrowing Costs
Mortgage rates have remained stubbornly high throughout 2024, pushing the cost of financing a new home out of reach for many households. The average rate on a 30-year fixed mortgage has hovered above 7% for much of the year, according to Freddie Mac data cited in the NAHB report. That has chilled demand for new homes, leaving builders with fewer contracts and longer inventory times.
Rising Costs Add to Builders' Woes
Builders are also grappling with higher prices for lumber, labor, and land. The NAHB survey noted that the cost of building materials has risen sharply over the past year, eating into profit margins. Smaller builders, in particular, have struggled to absorb these increases, leading some to scale back or delay projects. The combination of weak demand and higher input costs has dragged the index to its lowest level since the last recession.
A Stretched-Out Slump
The index has now been below 40 for 15 months, a streak not seen since the housing downturn of the late 2000s. A reading below 50 signals that more builders view conditions as poor than good. The persistent weakness suggests that the housing market is in a prolonged adjustment, with no immediate catalyst for a turnaround.
Builders are watching the Federal Reserve's next moves on interest rates, hoping for a shift that could revive demand. But until borrowing costs ease and material prices stabilize, the index is likely to remain suppressed. The next NAHB report, due in August, will show whether the summer months have brought any relief.
