A contractor works on a new home under construction in Tucson, Arizona, on Tuesday, February 22, 2022.
Rebecca Noble | Bloomberg | Getty Images
Builder confidence in the single-family home market has fallen to its lowest level since January as builders grapple with a market dominated by high mortgage rates and financing costs.
The National Association of Home Builders/Wells Fargo monthly housing market index fell four points to 40 in October, and the September reading was revised down one point. Anything below 50 is considered negative. This is the third consecutive monthly decline in builder confidence.
Builders clearly point to mortgage rates, which are now at a 23-year high. The average interest rate on the popular 30-year fixed-rate mortgage has been above 7% for two months. Affordability has fallen to near record lows.
“Builders have reported lower buyer traffic as some buyers, particularly younger ones, are being priced out of the market due to higher interest rates,” said Alicia Huey, chairwoman of the NAHB and a home builder and developer in Birmingham, Alabama. “Higher interest rates also increase the cost and availability of construction financing and construction loans, reducing supply and contributing to lower housing affordability.”
Of the index’s three components, current selling conditions fell four points to 46, sales expectations over the next six months fell five points to 44 and buyer traffic fell four points to 26.
In order to attract buyers, builders are increasingly relying on incentives. This also includes purchasing mortgage interest. About 62% of builders reported offering sales incentives of all types in October, up from 59% in September and matching the previous high for this cycle set in December 2022.
Additionally, 32% of builders said they would reduce property prices. That’s unchanged from the previous month, but still the highest rate since December (35%). The average price discount is constant at 6%.
“The housing affordability crisis can only be solved by creating additional accessible and affordable supply,” said NAHB Chief Economist Robert Dietz. “Increasing housing production would help reduce the housing inflation component that accounted for more than half of the total increase in the consumer price index in September and support the Fed’s mission to bring inflation back to 2%. However, uncertainty over monetary policy is contributing to affordability challenges in the market.
Regionally, builder sentiment fell four points to 50 in the Northeast and three points to 39 in the Northeast. It fell five points to 49 in the South and six points to 41 in the West.