Confidence among US homebuilders sank to its lowest level in more than 14 years in October, as mortgage rates climbing past 7% kept prospective buyers on the sidelines, the National Association of Home Builders (NAHB) reported on Monday. The NAHB/Wells Fargo Housing Market Index dropped three points to 29, the weakest reading since June 2012.
The index measures builders’ views of the market for newly built single-family homes on a scale of 0 to 100, with any reading below 50 meaning more builders see conditions as poor than good. October’s figure leaves sentiment far below the record high of 90 set in November 2020, real estate news outlet Inman noted.
Every gauge weakens
All three components of the survey declined this month. The gauge of current sales conditions slipped two points to 33, while expectations for sales over the next six months fell five points to 32. The measure of traffic from prospective buyers also lost five points, sliding to 18.
According to NAHB chief economist Robert Dietz, buyer traffic is now at its lowest since April 2012, setting aside the brief collapse at the start of the pandemic in April 2020. Dietz pointed to “higher mortgage rates, elevated construction costs and weaker consumer confidence” as the forces holding back buyers even though underlying demand remains, Inman reported.
Price cuts reach a new high
Builders are leaning harder on discounts to move inventory. The NAHB said 43% of builders reduced prices in October, the largest share it has recorded in the 2020-2026 period. The average reduction held at 6% for a seventh straight month. Some 65% of builders offered sales incentives, marking the 19th consecutive month in which at least six in ten builders have done so.
NAHB chairman Bill Owens, a builder and remodeler from Worthington, Ohio, said that “mortgage rates have climbed well above 7% in recent weeks.” He also pointed to rising costs for construction loans, building materials and diesel, as well as tighter labour and lot conditions. More than a third of builders nationwide reported immigration enforcement activity in their local markets, according to Owens, although he credited the administration’s push for regulatory reform with easing some cost pressures.
Regional picture
Based on three-month moving averages, sentiment fell in every region. The Midwest posted the highest reading at 40, down three points, and the NAHB described it as a relatively bright spot, with single-family permits in the region up 2.9%. The Northeast eased one point to 38 and the South one point to 30. The West was weakest, down two points to 26.
What comes next
The slump in builder sentiment adds to signs that elevated borrowing costs are weighing on one of the most rate-sensitive parts of the US economy. With buyer traffic at historic lows and a record share of builders cutting prices, the sector’s near-term prospects hinge largely on whether mortgage rates retreat from current levels. Analysts will look to upcoming government data on housing starts and permits, as well as quarterly results from major homebuilders, for further evidence of how deeply the slowdown is cutting into new construction.
Leave a Reply
You must be logged in to post a comment.