Builder confidence softens as mortgage rates rise

Washington, D.C.—Rising mortgage rates, energy and material costs, and worsening labor and lot conditions pushed builder sentiment to a 14-year low in October, according to the National Association of Home Builders (NAHB).

Builder confidence in the market for newly built single-family homes fell three points to 29. The National Association of Home Builders/Wells Fargo Housing Market Index reported the decline Oct. 19. The reading was the lowest since June 2012.

“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 Bill Owens, chairman of the NAHB and a home builder and remodeler from Worthington, Ohio. “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. Nationwide, more than one-third of builders reported immigration enforcement activity in their market areas during the past month, causing construction delays and discouraging legal workers from reporting to work.”

Robert Dietz, NAHB chief economist, added, “Housing remains squeezed by supply-side constraints and significant affordability challenges. Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines. As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic’s onset in April 2020.”

Builders turn to price cuts, incentives

The latest HMI survey found that 43% of builders cut prices in October. That marked the highest share recorded during the 2020-2026 period.

The average price cut remained at 6% for the seventh consecutive month. Meanwhile, 65% of builders reported using sales incentives in October.

October marked the 19th consecutive month in which at least 60% of builders reported using incentives.

NAHB has conducted the monthly HMI survey for more than 40 years. The index measures builder perceptions of current single-family home sales and sales expectations for the next six months.

Builders rate conditions as “good,” “fair” or “poor.” The survey also asks builders to rate prospective buyer traffic as “high to very high,” “average” or “low to very low.”

NAHB uses the scores for each component to calculate a seasonally adjusted index. A reading above 50 indicates that more builders view conditions as good than poor.

All three major HMI indexes declined in October.

The index measuring current sales conditions fell two points to 33. The index measuring sales expectations for the next six months dropped five points to 32.

The index measuring prospective buyer traffic also fell five points to 18.

Regional three-month moving averages also declined. The Northeast fell one point to 38 while the Midwest dropped three points to 40.

The South declined one point to 30 and the West fell two points to 26.

The Midwest remained a relative bright spot for single-family home building, with permits up 2.9%.

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