Builder Confidence Holds Steady as Rate-Cut Hopes Lift Future Housing Outlook

Homebuilder sentiment held firm in September, as optimism about falling mortgage rates and an anticipated Federal Reserve rate cut helped offset persistent cost pressures. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) registered a reading of 32 for the month — unchanged from August and marking the fifth consecutive month of subdued but stable builder confidence.

While sentiment remains well below the neutral level of 50, builders are increasingly optimistic about what's ahead. Expectations for future home sales climbed to their highest level since March, driven by easing mortgage rates and growing confidence that lower borrowing costs will bring more buyers back into the market before year's end.

"While builders continue to contend with rising construction costs, a recent drop in mortgage interest rates over the past month should help spur housing demand," said Buddy Hughes, NAHB chairman and a home builder and developer from Lexington, North Carolina.

NAHB Chief Economist Robert Dietz added that expectations for a Federal Reserve rate cut this week are also buoying sentiment. "NAHB expects the Fed to cut the federal funds rate at their meeting this week, which will help lower interest rates for builder and developer loans," he said. "Moreover, the 30-year fixed-rate mortgage average is down 23 basis points over the past four weeks to 6.35%, the lowest level since mid-October of last year — a positive sign for future housing demand."

Still, the survey reveals a market that remains cautious. Thirty-nine percent of builders reported cutting home prices in September, up from 37% the previous month and the highest share since the post-pandemic period began. The average price cut was 5%, a level that has held steady since last November. Meanwhile, 65% of builders used sales incentives — nearly unchanged from August's 66% — underscoring the lengths builders continue to go to attract hesitant buyers.

The NAHB/Wells Fargo HMI, which has tracked builder sentiment for more than four decades, measures three key components: current single-family home sales, sales expectations for the next six months, and traffic of prospective buyers. Any reading above 50 indicates more builders view conditions as good than poor. In September, the component measuring future sales expectations rose two points to 45, its strongest reading in six months. The index for current sales conditions held steady at 34, while buyer traffic slipped one point to 21, reflecting continued caution among would-be homeowners.

Regionally, builder confidence varied. The three-month moving average for the Northeast remained at 44, the Midwest edged up one point to 42, the South held at 29, and the West rose slightly to 26.

While overall confidence remains restrained, the data suggests that builders are beginning to see light at the end of a long tunnel. With mortgage rates easing and a potential rate cut on the horizon, industry optimism may finally be stabilizing — and could build further if lower borrowing costs succeed in reawakening buyer demand in the final quarter of 2025.

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