Homebuilder confidence dips: NAHB CEO talks rate pressures

US homebuilder confidence has dipped to its lowest point since December 2023, with the single-family homes index registering a reading of 42 for July. The National Association of Home Builders (NAHB) CEO Jim Tobin joins Wealth! to share his outlook on the housing market.

Tobin attributes the decline of recent gains in the housing market to the persistence of high interest rates. With mortgage rates hovering near the 7% mark, he observes that "demand is being suppressed by mortgage rates."

Tobin emphasizes the role of interest rates in its relationship to mortgage rates: "We're really going to need to see those [mortgage] rates come down to mid-sixes [percent]." Tobin also highlights an often overlooked aspect of the industry: acquisition..

"One of the lifebloods of homebuilding is acquisition, development, and construction (AD&C) lending," Tobin tells Yahoo Finance, noting that the cost of this lending has surged by nearly 14%, further complicating the landscape for builders.

Despite these challenges, Tobin points out that the American Southeast continues to be a robust area for new home construction and homebuyers.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Angel Smith

Video Transcript

Home builder confidence in July reaching the lowest level since December of 2023.

So Q four last year, confidence for newly built single family homes is a reading of 42 for this month.

That's down a point from June according to the National Association of Home Builders to discuss.

Let's bring in Jim Tobin, who is the National Association of Home Builders CEO here in studio with us.

Great to have you here.

It's great to be here.

Absolutely.

Take us into what's, what's driving this decline that we've seen and as we mentioned, lowest level that we've seen since December of 2023.

Of course, December usually see some cyclicality within that print.

But why now during which should be one of the home buying months here over the summer, we, we've erased all of our gains from the second half, the first half of this year.

That's really what the shame of the last two months have been, really what's driving his interest rates, uh interest rates continue to be stubbornly high.

You know, we're right under 7% for a mortgage rate right now and that's really stifled the market.

It's been the story over the last couple of years.

Uh And while there was some optimism coming into the New Year, we saw that reflected in our numbers when we crept back over 50 for the first time in a while.

Uh, we've retreated over these last six months.

So not surprising, uh, that just the, the demand is being suppressed by the by mortgage rates.

How many rate cuts do you believe that need to see in order for home builders to regain confidence?

Well, I think a couple of things, we're, we're now we expect certainly one by the end of the year, probably two.

Now, we're really thinking that Chair Powell seems to be indicating that maybe inflation is starting to tame and track in the right direction which case, maybe we'll get two, but they're going to be small.

We know this, we, I think the major rate cuts are going to come next year, you know, four or five, perhaps next year, we're really going to need to see those rates come down to mid sixes because the other part, we don't talk about talk about mortgage rates.

One of the lifeblood of home building is AD and C lending acquisition development and construction lending.

That's up about 13 or 14% when rates start really to retreat.

That's where we're gonna see a commensurate lowering of those construction loading rates as well.

What are some of the hottest markets that you're tracking right now for builders still still the, the Southeast really, really, you know, the Dallas market, uh Houston, Austin and Texas, you know, sweeping across uh through Alabama into South and North Carolina.

And then of course, Florida continue to be the hottest markets as, as you think about new home buyers and especially for family formation or job relocation, that typically tends to be the mindset that can drive some of these new home purchases, whether that be home builds or existing homes.

But as you're focused on where new homes have really taken on more than the historical average of the percentage of the broader home market.

Where do you see that continuing to trend to here?

Well, we saw in run up right after COVID in some of the smaller markets like Boise, Idaho, we saw big run up there.

Uh We in, in Quarterlane, Idaho, Austin was one of the hottest markets in the country those have cooled down as you would imagine.

Um But what we think we're gonna continue to see is the areas where you have a lot of economic growth.

We think of Texas, think of the Southeast again.

Um where people are gonna look for those new jobs where they're going to be for lack of better, we forced to buy new construction or move because of a, a job situation that's just gonna drive new construction.