Builder sentiment dropped to a 14-year low in October due to rising mortgage rates, elevated energy and material costs, and worsening labor and lot conditions.
Builder confidence in the market for newly built single-family homes fell three points to 29 in October, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). The reading is the lowest HMI value since June 2012.
The HMI has remained below 40 for 18 consecutive months. An index value below 50 indicates more builders view conditions as poor than good. In addition to the overall index, each of the three component indices registered readings below 40 in October.
“Mortgage rates have climbed well above 7% in recent weeks, and higher gas prices and inflation have further weakened buyer traffic across much of the country,” said NAHB chairman Bill Owens. “Though builders are also contending with higher costs for construction loans, building materials, and diesel, the Trump administration’s efforts to advance regulatory reform are helping to ease some of the cost pressures they face.”
Owens noted that one-third of builders reported immigration enforcement activity in their market areas during the past month, another pressure on the labor market causing construction delays and discouraging legal workers from reporting to work.
The HMI mirrors results from Zonda’s monthly survey of builders. Zonda’s most recent builder survey found 84% of builders reported slow demand with 60% indicating the slow demand is “causing concern.” Anecdotally, one surveyed builder said the fall housing market was the worst it had experienced since 2007.
“Housing remains squeezed by supply-side constraints and significant affordability challenges,” said NAHB chief economist Robert Dietz. “Demand persists, but higher mortgage rates, elevated construction costs, and weaker consumer confidence are keeping more buyers on the sideline. As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic’s onset in April 2020.”
To illustrate the impacts of affordability pressures in the market, the October HMI found 43% of builders cut prices during the month, the highest share in the past six years. Additionally, 65% of builders reported using sales incentives, the 19th straight month the share has been at or above 60%.
The HMI is composed of three indices gauging builder perceptions of current sales conditions, sales expectations for the next six months, and traffic of prospective buyers.
The HMI index measuring current sales conditions fell two points to 33, the metric tracking future sales expectations dropped five points to 32, and the index gauging prospective buyer traffic fell five points to 18.
On a regional basis, the three-month moving average HMI scores fell in all four Census regions.
