In a further signal that rising interest rates, building-material bottlenecks and elevated home prices continue to weaken the housing market, builder sentiment fell for the 10th straight month in October and traffic of prospective buyers fell to its lowest level since 2012 (excluding a brief window in 2020 at the beginning of the pandemic).
Builder confidence in the market for newly built single-family homes dropped eight points in October to 38 on a 0-to-100 scale – half the level it was six months ago – according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
This is the lowest confidence reading since August 2012, with the exception of the onset of the pandemic in the spring of 2020.
“Mortgage rates approaching 7 percent have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” said NAHB chairman Jerry Konter, a builder and developer from Savannah.
“This will be the first year since 2011 to see a decline for single-family starts,” said 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 home-ownership 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.”
The survey gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” It 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 then used to calculate a seasonally adjusted index.
All three HMI components posted declines in October. 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.