Builder Confidence Falls In October Amid Rising Mortgage Rates And Costs

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Builder confidence in newly built single-family homes fell three points to 29 in October, its lowest reading since June 2012, according to the NAHB/Wells Fargo Housing Market Index. Builders also reported weaker buyer traffic, while more than four in 10 cut prices and nearly two-thirds used sales incentives.

Builder confidence in the market for newly built single-family homes fell three points to 29 in October, its lowest reading since June 2012, as mortgage rates and construction costs rose, according to the National Association of Home Builders and Wells Fargo. The decline was accompanied by weaker prospective-buyer traffic and widespread price cuts and sales incentives.

The NAHB/Wells Fargo Housing Market Index (HMI) measures builders’ views of current single-family sales, sales expectations for the next six months and traffic from prospective buyers. The October reading remained well below 50, the threshold indicating that more builders view market conditions as good than poor.

All three main index components declined. The measure of current sales conditions fell two points to 33; the future-sales expectations index dropped five points to 32; and the prospective-buyer traffic index fell five points to 18. The latter was its lowest level since April 2012, excluding the pandemic’s onset in April 2020, according to NAHB chief economist Robert Dietz.

Builders reported increased use of discounts and incentives. Forty-three percent cut prices in October, the highest share in six years, while the average reduction remained 6% for a seventh consecutive month. Sixty-five percent offered sales incentives, marking the 19th straight month in which at least 60% did so.

Discounts Signal Buyer Strain

The October figures suggest that builders are facing pressure on both sides of the housing market: higher costs to build and buyers whose ability or willingness to purchase has weakened. Falling traffic and sales expectations matter because they can affect construction plans, hiring and the availability of new homes in coming months.

Price reductions and incentives may help some buyers manage the cost of a new home, but they also show that builders are working harder to attract customers. The report does not establish how much any particular buyer’s price or financing costs changed. It does show that discounts were increasingly common across the surveyed builders while average cuts stayed at 6%.

How the October Index Is Measured

The HMI is a monthly survey of home builders conducted by NAHB with Wells Fargo. Builders rate current single-family sales and expected sales over the next six months as good, fair or poor. They also rate prospective-buyer traffic from high to very high, average, or low to very low. The responses are used to create seasonally adjusted index readings.

In October, the regional indexes also declined: the Northeast fell one point to 38, the Midwest dropped three points to 40, the South declined one point to 30, and the West fell two points to 26. Single-family home permits in the Midwest were up 2.9%, a separate regional data point that does not reverse the national confidence decline.

NAHB chairman Bill Owens attributed the weaker traffic to mortgage rates climbing above 7% in recent weeks, along with higher gas prices and inflation. He also cited higher construction-loan, material and diesel costs. Those explanations reflect the association’s account of builders’ pressures; the index itself records survey responses rather than isolating the effect of each factor.

Causes and Local Effects Remain Unclear

The report does not quantify how much of the confidence decline came from mortgage rates, material costs, fuel prices, inflation or consumer confidence. It also does not provide a forecast for how long rates or building costs will remain elevated, or how builders will adjust construction plans in response.

Owens said more than one-third of builders reported immigration enforcement activity in their market areas during the prior month, which he said caused construction delays and discouraged legal workers from reporting to work. The supplied report does not give a separate survey measure of the delays’ scale or their effect on costs and output. The source material also does not specify the year of the October release.

Next Readings to Watch

Upcoming HMI releases can show whether builder sentiment, buyer traffic and sales expectations recover or continue to weaken. Readers can also watch future reports on mortgage rates, construction costs, permits and new-home sales for evidence of whether the pressures described by builders are easing.

The October survey does not predict a specific change in homebuilding or prices. Its next implications will depend on how financing costs, buyer demand and builders’ ability to manage expenses develop after the survey period.

Key Questions

What was the builder-confidence reading in October?

The NAHB/Wells Fargo HMI fell three points to 29. The report says this was the lowest reading since June 2012.

What does an HMI reading below 50 mean?

The index is built from builders’ ratings of sales and buyer traffic. A reading below 50 means more builders view conditions as poor than good.

How many builders cut prices or offered incentives?

Forty-three percent reported cutting prices in October, with the average cut at 6%. Sixty-five percent said they used sales incentives.

Did confidence fall in every region?

Yes. The reported regional readings declined in the Northeast, Midwest, South and West. The Midwest index was highest at 40, while the West was lowest at 26.

Source: rss