Builder confidence remains stunted by inflation

Builder confidence in the new single-family home market remains stifled by higher-for-longer mortgage interest rates as well as elevated rates for construction and development loans, according to the National Association of Home Builders/Wells Fargo Housing Market Index..All three components of the Housing Market Index remained below 50, indicating that more builders see conditions as poor than good. The index charting current sales conditions fell one point to 47. The index charting expected sales in the next six months increased one point to 48, while the measurement of prospective buyer traffic fell one point to 27. .More builders are cutting home prices to bolster sales, according to the report. Thirty-one percent did so in July, up from 29 percent in June and 25 percent in May. The average price reduction remained at 6 percent for the 13th straight month..The lack of confidence comes as the Federal Open Market Committee moves closer to reducing interest rates after holding its federal funds rate at between 5.25-5.50 percent in early June. The FOMC set the rate in January after hiking interest rates 11 times from near-zero starting in March 2022. .The Federal Reserve is becoming more confident that inflation is returning to its 2 percent long-term target following positive second quarter numbers, said Chair Jerome Powell on July 14 during a question-and-answer session at the Economic Club of Washington. He expects the FOMC will cut interest rates before inflation reaches the 2 percent mark. The futures market is pricing in a 90 percent chance the Fed will lower its discount window in September. Powell has refused to signal whether that will happen. ."Now that inflation has come down and the labor market has indeed cooled off, we are going to be looking at both mandates. They are in much better balance," Powell said of the FOMC's responsibility to achieve full employment and long-term 2 percent interest rates. "And that means that if we were to see an unexpected weakening in the labor market, that might also be a reason for a reaction from us." .Federal Reserve Govs. Michelle Bowman and Lisa Cook have remained noncommittal in recent weeks on when the FOMC will start reducing interest rates. Speaking June 25, Cook said the FOMC's current rate "is well positioned to respond as needed to any changes in the economic outlook." Speaking two days later at a banking conference, Bowman said she is even willing to raise interest rates "should the income data indicate that progress on inflation has stalled or reversed."