Builder Confidence Drops in October

Builder confidence in the market for newly built single-family homes in October fell four points to 40 from a downwardly revised September reading, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This is the third consecutive monthly drop in builder confidence.

“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,” said Alicia Huey, chairman of NAHB. “Higher rates are also increasing the cost and availability of builder development and construction loans, which harms supply and contributes to lower housing affordability.”

Since late September, mortgage rates are up nearly 40 basis points to 7.57 percent, according to Freddie Mac. Interest rates have increased on the Federal Reserve’s apparent higher-for-longer monetary policy stance, better than expected macro growth during the third quarter and longer-term concerns over government budget deficits.

“The housing affordability crisis can only be solved by adding additional attainable, affordable supply,” said Robert Dietz, chief economist for NAHB. “Boosting housing production would help reduce the shelter inflation component that was responsible for more than half of the overall Consumer Price Index increase in September and aid the Fed’s mission to bring inflation back down to 2 percent. However, uncertainty regarding monetary policy is contributing to affordability challenges in the market.”

As a result of the extended high interest environment, many builders continue to reduce home prices to boost sales. In October, 32 percent of builders reported cutting home prices, unchanged from the previous month but still the highest rate since December 2022 (35 percent). The average price discount remains at 6 percent. Meanwhile, 62 percent of builders provided sales incentives of all forms in October, up from 59 percent in September and tied with the previous high for this cycle set in December 2022.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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 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 then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three major HMI indices posted declines in October. The HMI index gauging current sales conditions fell four points to 46, the component charting sales expectations in the next six months dropped five points to 44, and the gauge measuring traffic of prospective buyers dipped four points to 26.

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