The monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for builder confidence fell three points to 29 (out of 100) in October, marking the lowest builder confidence in the market since June 2012.
NAHB attributed the historically low measure of builder sentiment to rising mortgage rates, energy and material costs, and worsening labor and lot conditions.
The “Trump administration’s efforts to advance regulatory reform” are, according to NAHB Chairman Bill Owens, “helping to ease some of the cost pressures (builders) face.” Nevertheless, the administration’s immigration crackdown is “causing construction delays and discouraging legal workers from reporting to work.”
The HMI, derived from survey data about builders’ perceptions of current single-family home sales, covers expectations for single-family home sales in the next six months, and expectations of prospective buyer traffic.
The three component indices of builder confidence fell in line with overall builder confidence. The current sales conditions index reported a drop of two points to 33, while the future sales expectations index fell five points to 32. Prospective buyer traffic, previously described as “steady,” fell five points to a dismal 18 this month.
NAHB Chief Economist Robert Dietz identified “higher mortgage rates, elevated construction costs and weaker consumer confidence” as factors that are “keeping more buyers on the sidelines.”
“As a result,” he says, “buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic’s onset in April 2020.”
Owens also remarked that “higher gas prices and inflation have further weakened buyer traffic,” reflecting other measures of consumer anxiety in the current economy. The latest Consumer Price Index from the Bureau of Labor Statistics, for example, found energy to blame for recent inflation spikes.
The survey also found that 43% of builders cut prices in October, up from 38% in September and 35% in August. The survey reports that 43% is the highest share of builders cutting prices in the 2020-2026 period so far. The percentage of builders using sales incentives this month, on the other hand, fell one percentage point from 66% in September.
This is still also the 19th straight month in which at least 60% of builders have reported using sales incentives.
The regional outlook according to the index is also largely negative. HMI scores in the Northeast dropped one point to 38, the Midwest fell three points to 40, the South fell one point to 30 and the West declined two points to 26.
NAHB did note, however, that permits in the Midwest are actually up 2.9%, making the Midwest the best spot for single-family homebuilding in the current market.
