Builder sentiment fell for the 10th straight month in October, and traffic of prospective buyers fell to its lowest level since 2012, as found by a new report from the National Association of Home Builders (NAHB) released this week.
According to the NAHB/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes dropped eight points in October to 38—half the level it was just six months ago. This is the lowest confidence reading since August 2012, with the exception of the onset of the pandemic in the spring of 2020.
“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Georgia. “This situation is unhealthy and unsustainable. Policymakers must address this worsening housing affordability crisis.”
The NAHB/Wells Fargo HMI, as stated by a release, gauges builder perceptions of current single-family home sales, sales expectations, and traffic of prospective buyers for the next six months. Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
NAHB stated that 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. Looking at the three-month moving averages for regional HMI scores, the Northeast fell three points to 48, the Midwest dropped three points to 41, the South fell seven points to 49 and the West posted a seven-point decline to 34.
“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 forecasted 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.”
For the full report, click here.
