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U.S. builder confidence in the market for newly built single-family homes fell three points to 29 in October, the lowest reading since June 2012, according to the NAHB/Wells Fargo Housing Market Index. Builders also reported weaker buyer traffic and widespread price cuts and sales incentives amid higher mortgage rates and construction costs.
Builder confidence in newly built single-family homes fell three points to 29 in October, its lowest level since June 2012, as mortgage rates and costs for energy and building materials weighed on the housing market, according to the National Association of Home Builders and Wells Fargo.
The NAHB/Wells Fargo Housing Market Index (HMI) declined across all three of its major measures. The index for current sales conditions fell two points to 33; the measure of sales expectations for the next six months dropped five points to 32; and the prospective-buyer traffic index fell five points to 18. An HMI score above 50 indicates that more builders view conditions as good than poor.
Builders reported increased reliance on discounts and other offers. In October, 43% cut home prices, the highest share in six years, while the average cut remained at 6% for the seventh month in a row. Sixty-five percent offered sales incentives, marking the 19th consecutive month in which at least 60% of builders reported using them.
All four regions recorded lower confidence: the index fell one point to 38 in the Northeast, three points to 40 in the Midwest, one point to 30 in the South and two points to 26 in the West. The source report also notes that single-family home permits were up 2.9% in the Midwest; it does not specify the comparison period for that figure.
Discounts Signal Buyer Affordability Strain
The decline matters to prospective homebuyers because it points to continued pressure on the market for newly built homes. With borrowing rates and construction expenses high, builders are using price reductions and incentives to attract customers, while the buyer-traffic measure indicates fewer prospective buyers are visiting or engaging with builders.
For builders, weaker confidence and more costly financing and materials may complicate sales planning and construction decisions. The index is a survey of builder perceptions, not a count of homes sold or a direct measure of construction output, so it signals sentiment rather than proving how many projects will be delayed or canceled.
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How the October HMI Is Measured
The HMI is based on a monthly survey of homebuilders about current single-family sales, expected sales over the next six months and traffic from prospective buyers. Respondents rate conditions using categories such as good, fair or poor; their answers feed into seasonally adjusted component indexes.
The October result followed a sustained period of builder use of sales incentives: at least 60% reported doing so for 19 consecutive months. The latest report connects the weaker reading with higher mortgage rates, gas prices, inflation and construction costs. It also records builders’ reports of labor disruptions, while distinguishing those reports from independently established nationwide counts.
Survey Findings Leave Market Effects Open
The HMI reports builders’ perceptions; it does not establish the number of homes that will be built, sold or postponed. The source material does not provide the survey’s sample size, detailed methodology or a release date, and it does not say how long higher borrowing and construction costs are expected to persist.
The reported immigration-related delays and worker absences are builders’ accounts collected by NAHB, rather than independently measured nationwide effects. The source also gives the Midwest permit increase as 2.9% without specifying its comparison period, so that figure cannot be placed against a stated month or year in this report.
Upcoming Readings Will Test the Trend
The next monthly HMI release will show whether builder perceptions and prospective-buyer traffic continue to weaken or begin to recover. Changes in mortgage rates, material and energy costs, and builders’ use of discounts and incentives will help explain any shift in the index.
Readers should treat the October figures as a snapshot of surveyed builder sentiment. The supplied report does not give a forecast for the next reading or specify when it will be published.
Key Questions
What was the builder confidence reading in October?
The NAHB/Wells Fargo Housing Market Index fell three points to 29, its lowest reading since June 2012, according to the source report.
What does an HMI reading below 50 mean?
The index combines builders’ assessments of current sales, expected sales over the next six months and prospective-buyer traffic. A score below 50 means more builders view conditions as poor than good.
How many builders cut prices or offered incentives?
Forty-three percent reported cutting prices in October, with an average reduction of 6%. Sixty-five percent reported using sales incentives.
Did confidence fall in every region?
Yes. The regional indexes declined to 38 in the Northeast, 40 in the Midwest, 30 in the South and 26 in the West, according to the report.
Source: rss
