Elevated interest rates, high building material costs, and declining affordability conditions are both pushing more buyers to the sidelines and dragging down builder sentiment. For the 11th consecutive month, builder confidence in the market for newly built single-family homes declined in November, according to the NAHB/Wells Fargo Housing Market Index (HMI). Builder confidence fell five points to 33 in November, the lowest confidence reading since June 2021, with the exception of the onset of the COVID-19 pandemic in the spring 2020.

“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” says NAHB chairman Jerry Konter. “With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production.”

To encourage buyers on the sidelines to enter the marketplace, 59% of builders reported using incentives in November. In November, 25% of builders reported they are paying points for buyers, up from 13% in September. The percentage of builders offering mortgage rate buydowns increased to 27% in November from 19% in September. Additionally, 37% of builders cut prices in November—an increase from 26% in September—with an average price reduction of 6%.

“Even as home prices moderate, building costs, labor and materials—particularly for concrete—have yet to follow,” says NAHB chief economist Robert Dietz. “To ease the worsening housing affordability crisis, policymakers must seek solutions that create more affordable and attainable housing. With inflation showing signs of moderating, this includes a reduction in the pace of the Federal Reserve’s rate hikes and reducing regulatory costs associated with land development and home construction.”

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The HMI survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores for each component are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view conditions as good than poor.

In November, all three HMI components posted declines. Current sales conditions fell six points to 39, sales expectations in the next six months declined four points to 31, and traffic of prospective buyers fell five points to 20. The three-month moving average HMI fell six points to 41 in the Northeast, dropped two points to 38 in the Midwest, decreased seven points to 42 in the South, and fell five points to 29 in the West.