Homebuilder stocks declined on Monday as the housing sentiment index remained unchanged in April, breaking a four-month streak of gains. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) held steady at 51, indicating that more builders view conditions as good rather than poor. NAHB chief economist Robert Dietz noted that potential demand growth is being hindered by uncertainty over interest rates. Lennar (LEN), Pulte (PHM), Toll Brothers (TOL), and the SPDR S&P Homebuilders ETF (XHB) all saw declines in response to the news.
The stagnant confidence level among builders reflects a market where buyers and sellers are hesitant to make moves due to high home prices and limited housing stock. Recent inflation data has led investors to adjust their expectations for rate cuts, with the Federal Reserve now expected to announce future cuts later this year. Mortgage rates have risen slightly since the beginning of the year, reaching 6.88% for the 30-year fixed rate, causing some borrowers to hold off on purchasing homes during the spring season.
In April, builders reduced their use of sales incentives and were less likely to cut home prices compared to previous months. Despite these challenges, Dietz remains optimistic that the Federal Reserve will implement rate cuts later in the year, leading to a moderation in mortgage rates in the second half of 2024.