The sentiment of builders has reached a 14-year low due to the combination of worsening labor and lot conditions, rising mortgage rates, and energy and material costs.
In October, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) reported that builder confidence in the market for newly constructed single-family homes decreased by three points to 29.
The reading was the lowest since June 2012.
Housing continues to be constrained by substantial affordability challenges and supply-side constraints.
In the past few weeks, mortgage rates have spiked significantly above 7%.
Despite the fact that builders are also grappling with increased costs for construction loans, building materials, and diesel, the administration’s initiatives to promote regulatory reform are alleviating some of the cost pressures they are experiencing.
Although demand remains strong, a greater number of buyers are choosing to remain on the sidelines due to elevated construction costs, higher mortgage rates, and weakened consumer confidence.
Consequently, consumer traffic has plummeted to its lowest level since April 2012, with the exception of the pandemic’s onset in April 2020.
During the previous month, over one-third of builders nationwide reported immigration enforcement activity in their market areas, which resulted in construction delays and discouraged legal laborers from reporting to work.
The most recent HMI survey revealed that 43% of builders reduced prices in October, the highest percentage recorded during the 2020-2026 period.
For the seventh month in a row, the average price reduction was maintained at 6%.
In October, 65% of builders reported utilizing sales incentives, marking the 19th consecutive month in which at least 60% of builders have done so.
The NAHB/Wells Fargo HMI, which is based on a monthly survey that NAHB has been conducting for over 40 years, assesses builder perceptions of present single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The survey also requests that builders evaluate the traffic of potential buyers as “high to very high,” “average,” or “low to very low.” The scores for each component are subsequently utilized to generate a seasonally adjusted index.
A value greater than 50 indicates that a greater number of builders perceive the conditions as favorable than unfavorable.
In October, all three of the primary HMI indices experienced losses.
The index that measures current sales conditions decreased by two points to 33, the index that gages future sales expectations decreased by five points to 32, and the index that charts prospective buyer traffic decreased by five points to 18.
The three-month moving averages for regional HMI scores indicate that the Northeast experienced a one-point decrease to 38, the Midwest experienced a three-point decline to 40, the South experienced a one-point decline to 30, and the West experienced a two-point decline to 26.
The Midwest is a relatively optimistic region for single-family home construction, as permits have increased by 2.9%.
The HMI tables are available at nahb.org/hmi.
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