Ray of hope in the US construction sector: Builders show more optimism

The confidence of U.S. construction companies saw a slight increase in September as mortgage rates declined. This ended a series of four consecutive declines, although confidence levels overall remain relatively low. The ongoing high construction costs continue to burden the construction sector. The NAHB/Wells Fargo Housing Market Index, which reflects builder confidence, rose from 39 to 41 points in September, the National Association of Home Builders (NAHB) reported on Tuesday. A Reuters poll of economists had expected an increase to 40 points. This is the first positive outlook for future home sales since May. The U.S. Federal Reserve is poised to start a series of interest rate cuts following its meetings concluding on Wednesday. The central bank had raised interest rates to a range of 5.25% to 5.50% between 2022 and 2023 to curb high inflation, which led to a downturn in the real estate market. However, mortgage rates are now declining again as the Fed has signaled further rate cuts. According to Freddie Mac, the average rate for a 30-year fixed mortgage recently fell to 6.20%, after reaching nearly 8% last October. NAHB Chief Economist Robert Dietz noted that interest rate cuts "will put downward pressure on mortgage rates and also lower the rates for developing land and construction loans." He added that "reducing construction costs is crucial to addressing the ongoing challenges of housing affordability." Data earlier this month showed that U.S. construction spending fell more than expected in July as the increased supply weighed on single-family home construction. The NAHB also cited additional competition among builders due to rising housing inventories as a potential headwind. Nonetheless, confidence in sales expectations for the next six months increased by four points to 53 in September. The easing of mortgage rates allowed builders to delay price cuts on homes. The share of builders reducing prices fell this month for the first time since April, with the average price reduction at 5%, marking the first time it was below 6% since July 2022.