Homebuilder Confidence Declines to a 10-Month Low Amid Surge in Mortgage Rates

Builder confidence in the single-family housing market has reached its lowest level since January, reflecting the challenges builders face amid the dominance of high mortgage rates and financing costs. The monthly National Association of Home Builders/Wells Fargo Housing Market Index recorded a 4-point decline to 40 in October, with September’s reading revised down by 1 point. Any figure below 50 is considered negative, marking the third consecutive monthly decrease in builder confidence.

Builders primarily attribute this decline to surging mortgage rates, which have now reached a 23-year high. The average rate for the popular 30-year fixed mortgage has remained above 7% for the past two months, significantly impacting affordability.

Alicia Huey, NAHB’s chairman and a homebuilder and developer from Birmingham, Alabama, stated, “Builders have reported lower levels of buyer traffic, as some buyers, particularly younger ones, are priced out of the market because of higher interest rates. Higher rates are also increasing the cost and availability of builder development and construction loans, which harms supply and contributes to lower housing affordability.”

The index’s three components also experienced declines: current sales conditions fell by 4 points to 46, sales expectations for the next six months dropped by 5 points to 44, and buyer traffic declined by 4 points to 26.

To attract buyers in the current market, builders have increased their use of incentives, including buying down mortgage interest rates. In October, approximately 62% of builders reported offering sales incentives, up from 59% in September and tying with the previous high set in December 2022. Additionally, 32% of builders reported reducing home prices, which remained unchanged from the previous month but is still the highest rate since December (35%), with an average price discount of 6%.

Robert Dietz, NAHB’s chief economist, emphasized that solving the housing affordability crisis requires adding more attainable and affordable supply. Increasing housing production can help reduce the shelter inflation component responsible for over half of the overall Consumer Price Index increase in September and align with the Federal Reserve’s goal to lower inflation to 2%. However, uncertainty regarding monetary policy is contributing to affordability challenges in the market.

Regionally, builder sentiment, as measured on a three-month moving average, saw declines in the Northeast (4 points to 50), Midwest (3 points to 39), South (5 points to 49), and West (6 points to 41).