Down 12% month over month. To an index level of 45.
This level of sentiment is well below the long-term norm and suggests sluggish housing market conditions in H2 2024.
Watch out for more aggressive builder price cuts as year goes on to clear excess inventory.
1) Builder sentiment is declining because of subdued buyer demand conditions to go along with rising inventory levels.
For example - the supply of completed, unsold homes on builder lots is now at the highest level in 13 years.
Source: US Census Bureau
2) Moreover - builders are now starting to face significant supply competition from the re-sale market.
With the inventory of re-sale homes skyrocketing in states like Florida, Arizona, Texas, and Georgia - the exact states that builders are most active in.
American homebuyers can now expect to pay 41% of their gross income on mortgage costs.
This is the highest rate of mortgage burden since the early 1980s when rates were 18%.
No historical precedent for this lack of affordability lasting.
Note that in mid-2000s bubble the mortgage burden peaked at 39%. Less than it is today. Before collapsing.
What this suggests is that today's historical lack of affordability won't last. Something will eventually give. Lower prices, lower rates, and/or higher incomes.
1) Here's the math in the graph above, for those who are curious:
Monthly Payment: $2,754 (inclusive of taxes, insurance)
Annual Payment: $33,048
2024 Median Income: $79,790
=41% mortgage burden ratio.
2) So no wonder homebuyer demand is in the tank. Many homebuyers can't even afford to qualify for a mortgage in this market.
However - there are huge differences based on location.
For instance, the most expensive parts of America with highest mortgage burden are on coasts, in red. Where median income households need to spend 50% of their income to buy a house.
1) What's interesting is that this inventory surge in Nashville is happening amidst a wave of positive press about how many people are moving to the city.
WSJ just ran a piece about Nashville booming.
But that doesn't seem to be backed up by the data anymore...
2) Because not only is inventory skyrocketing, we're also seeing way more price cuts hit the Nashville Housing Market.
In March 2024, sellers in Nashville cut prices on 25% of listings.
Along with 2023, these were the highest price cut levels in Nashville for any March going back seven years.