Homebuilders are feeling the most pessimistic about the new-construction market in 14 years, as surging mortgage rates keep would-be buyers on the sidelines this fall.
Builder confidence in new single-family home sales shed three points month over month, bringing the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) down to 29 on Monday. Any reading below 50 reflects the industry’s negative view of the market.
This is the lowest HMI since June 2012. For context, builder sentiment has now remained below 40 for 18 consecutive months.
NAHB Chairman Bill Owens ascribes the sharp pullback to soaring borrowing costs and broader economic headwinds.
“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,” says Owens. “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.”
Last Thursday, Freddie Mac reported that the average rate on 30-year fixed home loans held steady week over week at 7.4%, a three-year high fueled by a global bond selloff that pushed up 10-year Treasury yields.
While less visible than earlier this year, the Trump Administration’s anti-immigration crackdown continues to negatively impact the residential construction industry across the U.S.
In October, more than one-third of builders reported immigration enforcement activity in their market areas, causing construction delays and discouraging workers who are living in the U.S. legally from reporting to work, according to NAHB.
“Housing remains squeezed by supply-side constraints and significant affordability challenges,” says NAHB chief economist Robert Dietz. “Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines.”
Price cuts and incentives
The latest data from the monthly HMI survey of single-family homebuilders showed that 43% of them slashed prices in October, up from 38% in September. The average price cut remained at 6% for the seventh consecutive month.
Meanwhile, 65% of builders reported using sales incentives, such as rate buydowns, in October, the 19th month in a row when at least 60% of builders have resorted to this strategy, signaling an ongoing market cooldown.
The index measuring current sales conditions slipped two points to 33, while the index gauging future sales expectations dropped five points to 32. At the same time, the index charting prospective buyer traffic fell five points to 18.
On a regional, three-month rolling average basis, the HMI index for the Northeast shed one point to 38, the Midwest fell three points to 40, the South ticked down one point to 30, and the West posted a two-point decline to 26.
