Builder sentiment declined for the 10th consecutive month in October, reflecting the impact of rising interest rates, building material bottlenecks, and elevated home prices on the housing market. In addition to falling builder sentiment, the traffic of prospective buyers reached its lowest level since 2012, excluding the two months at the beginning of the pandemic in 2020, according to the NAHB/Wells Fargo Housing Market Index (HMI).
Builder confidence in the market for newly built single-family homes fell eight points in October to 38—half the level it was six months ago. According to the NAHB, the confidence reading is at its lowest level since August 2012, with the exception of the onset of the COVID-19 pandemic in spring 2020.
“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” says NAHB chairman Jerry Konter. “This situation is unhealthy and unsustainable. Policymakers must address this worsening housing affordability crisis.”
The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The HMI survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores for each component are used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view conditions as good than poor.
In October, all three HMI components posted declines. Current sales conditions fell nine points to 45, sales expectations in the next six months declined 11 points to 35, and traffic of prospective buyers fell six points to 25. The three-month moving average HMI score fell three points to 48 in the Northeast, declined three points to 41 in the Midwest, fell seven points to 49 in the South, and declined seven points to 34 in the West.
“This will be the first year since 2011 to see a decline for single-family starts,” says NAHB chief economist Robert Dietz. “And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecast to see additional single-family building declines as the housing contraction continues. While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers.”
