• Prior was 36

• Current single-family home sales 42 vs 41 prior
• Prospective buyers 25 vs 22 prior
• Home sales expectations over the next six months 49 vs 46 prior

The headline number has been sliding — the index fell to 36 in February, down from 37 in January, which itself dropped from 39 in December. That’s now 22 consecutive months below the 50 line that separates positive from negative builder sentiment, and it came in below the consensus forecast of 38.

I’m surprised to see improvement in this survey given higher oil prices and borrowing costs.

The main culprit is affordability. High price-to-income ratios, elevated land and construction costs, and mortgage rates that — while improving — remain well above pandemic-era levels are all weighing on demand. NAHB Chairman Buddy Hughes noted that the upper end of the market is holding up, but the lower and mid-range segments are really feeling the squeeze, with downpayments especially challenging.

On the incentive front, 36% of builders cut prices in February, actually down from 40% in January and the lowest share since May. The average price reduction held at 6%. Broader sales incentives were used by 65% of builders, marking the 11th straight month above 60%.

There’s a bit of a silver lining: mortgage rates fell to about 6.06% in mid-January, the lowest in three years, and NAHB’s chief economist Robert Dietz pointed to easing inflation as a path toward further rate relief.

One interesting disconnect — despite the weak sentiment data, homebuilder stocks (via the XHB ETF) actually hit a record in mid-February, suggesting the equity market is looking past near-term headwinds toward eventual rate cuts and favorable demographics.

This article was written by Adam Button at investinglive.com.