Builder Confidence in Housing Market Drops to Lowest Level Since January
Builder confidence in the market for single-family homes has dropped to its lowest level since January. Builders are facing challenges in a market dominated by high mortgage rates and financing costs. The monthly National Association of Home Builders/Wells Fargo Housing Market Index dropped four points to 40 in October, with September’s reading revised down by one point. A reading below 50 indicates negative sentiment. This marks the third consecutive monthly decline in builder confidence.
Builders are attributing the drop in confidence to the surge in mortgage rates, which have reached a 23-year high. The average rate on 30-year fixed mortgages has remained above 7% for the past two months, leading to decreased affordability. Alicia Huey, chairman of NAHB and a homebuilder and developer from Birmingham, Alabama, stated that “some buyers, particularly younger ones, are priced out of the market because of higher interest rates.” The increased rates also impact the cost and availability of builder development and construction loans, further impacting housing affordability.
Among the components of the index, current sales conditions dropped four points to 46, sales expectations in the next six months fell five points to 44, and buyer traffic decreased four points to 26.
To attract buyers, builders are reintroducing incentives, such as buying down mortgage interest rates. About 62% of builders reported offering sales incentives in October, up from 59% in September. Additionally, 32% of builders have reduced home prices, with an average price discount of 6%.
Robert Dietz, chief economist at NAHB, emphasized the need for increased housing production to address the affordability crisis. He stated that boosting housing production would help reduce shelter inflation, which accounted for more than half of the overall Consumer Price Index increase in September. However, uncertainty regarding monetary policy is contributing to affordability challenges in the market.
Regionally, builder sentiment on a three-month moving average declined in all areas. In the Northeast, it fell four points to 50; in the Midwest, it dropped three points to 39; in the South, it decreased five points to 49; and in the West, it fell six points to 41.
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