- NAHB index drops to 37 in January, below 50 breakeven point for 21 months
- Affordability issues impact lower and mid-range housing sectors
- Builders face labor shortages, high material costs and regulatory challenges
WASHINGTON, Jan 16 (Reuters) - U.S. homebuilder sentiment deteriorated in January as affordability worries sidelined potential buyers and rising costs hampered construction activity, a survey showed on Friday.
The National Association of Home Builders/Wells Fargo Housing Market index dropped two points to 37 this month, remaining below the 50 break-even point for 21 straight months.
Economists polled by Reuters had forecast the index edging up to a reading of 40.
"While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors," said NAHB Chairman Buddy Hughes. "Buyers are concerned about high home prices and mortgage rates, with down payments particularly challenging given elevated price-to-income ratios."
The NAHB said most of the responses to the survey were received prior to President Donald Trump's order last week for the Federal Housing Finance Agency - which oversees mortgage finance giants Freddie Mac and Fannie Mae - to purchase $200 billion worth of bonds issued by the two companies.
The move is aimed at boosting housing affordability. The average rate on the popular 30-year fixed-rate mortgage dropped by 10 basis points to more than a three-year low of 6.06% this week. Still, the NAHB noted that builders continued to report several supply-side headwinds, including labor and lot shortages as well as elevated regulatory and material costs.
Trump's sweeping tariffs have raised prices for building materials and appliances, while his immigration crackdown, including raids at construction sites, has undercut labor supply. Associated Builders and Contractors on Thursday estimated the construction industry needed about 349,000 new workers in 2026 to meet demand for construction services.
Weak housing demand has led to a glut of unsold new homes, another challenge confronting builders.
About 40% of builders reported cutting prices in January, unchanged from December. It was the third straight month the share was at 40% or higher since May 2020, the NAHB said. The average price reduction was 6%, up from 5% in December.
The share using incentives eased to 65% from 67% in the prior month. Nonetheless, it was the 10th consecutive month that this share has exceeded 60%.
The survey's measure of current sales conditions dipped one point to 41, while its gauge of future sales dropped three points to 23. A measure of prospective buyer traffic fell three points to 49.
"The future sales component of the HMI dipped below 50 for the first time since September, indicating that builders continue to face several issues that include labor and lot shortages as well as elevated regulatory and material costs," said NAHB chief economist Robert Dietz.
Reporting By Lucia Mutikani
Source: Reuters