By Lucia Mutikani
WASHINGTON (Reuters) -U.S. homebuilder sentiment jumped to a six-month high in October amid hopes that declining mortgage rates would stimulate demand for housing and help reduce an inventory overhang that has hampered new housing construction.
Economic uncertainty and a lackluster labor market are, however, likely to offset some of the anticipated boost to demand from lower borrowing costs. The Federal Reserve’s Beige Book report on Wednesday described economic activity as little changed in recent weeks and said demand for labor was generally muted.
“Mortgage rates have fallen only slightly over the last three months and households remain anxious about the job market outlook, suggesting demand will remain weak ahead,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
“A meaningful recovery in housing demand, construction and transactions is unlikely before mid-2026.”
The National Association of Home Builders/Wells Fargo Housing Market index increased five points to 37 this month, the highest reading since April, the NAHB said on Thursday.
But it remained below the 50 breakeven point for the 18th straight month. Economists polled by Reuters had forecast the index edging up to 33.
Higher mortgage rates have dampened housing demand, resulting in a glut of unsold new homes on the market. Mortgage rates have eased as the U.S. central bank resumed cutting interest rates. But the decline has not led to a surge in home buying as economic worries keep prospective buyers out.
“The housing market has some areas with firm demand, including … ongoing solid conditions for the luxury market,” said NAHB chairman Buddy Hughes. “However, most home buyers are still on the sidelines.”
HOUSING MARKET CONDITIONS REMAIN CHALLENGING
The survey is the latest to highlight what some economists are calling a K-shaped economy, where high-income households are driving much of activity. The Fed’s Beige Book noted strong “spending by higher-income individuals on luxury travel and accommodation.”
Higher goods prices from tariffs on imports as well as a stagnant labor market are hampering spending by lower-income and some middle-income households.
The NAHB survey’s measure of current sales conditions increased four points to 38 this month, while its gauge of future sales jumped nine points to 54. A measure of prospective buyer traffic posted a four-point gain to 25.
Builders continued to reduce house prices to lure buyers. Thirty-eight percent reported cutting prices. The average price reduction rose to 6%, the largest cut in a year, after averaging 5% for several months.
New housing inventory decreased in August after hovering for several months at levels last seen in late 2007.
The government shutdown amid a standoff over funding has suspended the collection and publication of economic data.
It has also impacted the processing of flood insurance coverage, with realtors warning of severe disruptions to home sales in many states, including Maryland, Virginia, North Carolina and Florida.
The NAHB estimated new single-family building permits rebounded in September after plunging in August to the lowest level in more than two years.
“Based on modeling of historical data, the October increase for the HMI suggests an approximate 3% increase for the September single-family permit data on a seasonally adjusted annual rate basis,” said NAHB chief economist Robert Dietz.
(Reporting By Lucia Mutikani, Editing by Franklin Paul and Nia Williams)
