Builder Confidence Falls In October Amid Rising Mortgage Rates And Costs

TL;DR

Before you orderOffer from Amazon

Get pool and patio gear delivered free with Prime

• Fast, free delivery on millions of items
• Prime Video, Amazon Music and more included
• Member-only deals all year

Start your free Prime trial →Free trial for eligible customers · Cancel anytime

As an affiliate, we earn on qualifying purchases.Hide

Builder confidence in the market for newly built single-family homes fell three points to 29 in October, the lowest level since June 2012, according to the NAHB/Wells Fargo index. Builders also reported weaker buyer traffic and continued reliance on price cuts and sales incentives amid higher mortgage rates and construction costs.

Builder confidence fell three points to 29 in October, reaching its lowest level since June 2012, as higher mortgage rates and rising energy and material costs weighed on the market for newly built single-family homes, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The decline signals that builders were reporting worsening sales conditions, expectations and prospective buyer traffic.

All three components of the index declined. The measure of current sales conditions dropped two points to 33, while the index of sales expectations over the next six months fell five points to 32. The prospective buyer traffic measure also lost five points, landing at 18. Index readings below 50 indicate that more builders view conditions as poor than good.

Builders reported responding to a difficult sales environment with discounts and incentives. In October, 43% cut prices, the highest share in six years; the average reduction remained 6% for a seventh consecutive month. Sales incentives were reported by 65% of builders, marking the 19th straight month in which at least 60% said they were using them.

The report also showed declines across all four regions: the Northeast fell one point to 38, the Midwest dropped three points to 40, the South slipped one point to 30 and the West lost two points to 26. Separately, single-family home permits rose 2.9% in the Midwest. The report did not specify a comparison period for that permit figure in the supplied material.

Discounts Signal Sales Pressure

The drop matters to homebuyers, builders and businesses tied to construction because the index tracks builders’ assessments of current sales, expected sales and buyer traffic. With each component declining, the October results point to pressure across both present demand and near-term expectations, rather than a setback confined to one measure.

The reported price cuts and incentives offer a practical indicator of how builders are trying to attract buyers. They do not, by themselves, establish that new homes have become broadly affordable: the average reduction was 6%, while builders also cited elevated costs and buyers faced higher mortgage rates. For prospective buyers, financing costs can affect purchasing power even when a seller offers a discount.

For building suppliers and contractors, lower confidence may indicate a more cautious market outlook, but the survey does not measure future construction activity directly. The Midwest permit increase is one regional data point and does not offset the broader declines reported in builder confidence.

How the Housing Index Works

The NAHB/Wells Fargo Housing Market Index is based on a monthly survey of builders’ views of the market for newly built single-family homes. It asks respondents to rate current sales and sales expectations for the next six months as good, fair or poor, and to assess prospective buyer traffic as high to very high, average or low to very low.

Those responses are used to calculate a seasonally adjusted index. A reading above 50 means more builders view conditions as good than poor. October’s overall reading of 29 was therefore firmly below that threshold. The report described it as the lowest reading since June 2012.

NAHB Chairman Bill Owens attributed the weaker conditions to mortgage rates that had climbed well above 7% in recent weeks, as well as higher gas prices and inflation. He also said builders were facing higher construction-loan, material and diesel costs. Those are explanations offered by the industry association’s chairman, alongside the survey results.

Limits of the October Survey

The index records builders’ perceptions; it is not a count of home sales, completed houses or buyers who withdrew from the market. The supplied report gives the index readings and builder responses but does not provide the survey’s sample size, exact field dates or a breakdown of results by state.

It is also not yet clear whether the October decline will continue in subsequent readings or how much of the weakness reflects mortgage rates versus construction expenses, consumer confidence or other factors. Owens and Dietz offered explanations, but the survey figures do not isolate the contribution of each factor. The report’s reference to mortgage rates above 7% describes the recent period cited by Owens, not a rate quoted for every borrower.

Watch the Next HMI Reading

The next monthly NAHB/Wells Fargo Housing Market Index will show whether builder assessments improved, held steady or deteriorated further. Readers can compare its overall score and the three component measures—current sales, expected sales and buyer traffic—with October’s results.

Mortgage rates, construction costs and builders’ use of discounts and incentives will remain relevant indicators, but the supplied report does not give a forecast for those measures. The next index release may clarify the direction of builder sentiment; it will not, on its own, establish how actual home sales or construction will change.

Key Questions

What happened to builder confidence in October?

The NAHB/Wells Fargo Housing Market Index fell three points to 29, its lowest reading since June 2012, according to the report.

What does an HMI reading of 29 mean?

The index combines builders’ assessments of current sales, expected sales over the next six months and prospective buyer traffic. A score below 50 means more builders view conditions as poor than good.

Were builders lowering prices?

Yes. Forty-three percent of builders said they cut prices in October, the highest share in six years. The average price cut was 6% for the seventh consecutive month, according to the survey.

Which region had the highest October index reading?

The Midwest had the highest regional reading at 40, despite falling three points. The Northeast was at 38, the South at 30 and the West at 26.

Source: rss