Home builder confidence falls to its lowest since 2012 as mortgage rates stay above 7%

U.S. home builders are the gloomiest they have been in more than 14 years. The National Association of Home Builders/Wells Fargo Housing Market Index fell three points to 29 in October, its lowest reading since June 2012, the trade group said on Monday, Oct. 19, as mortgage rates above 7% kept buyers away and costs kept rising.

What the survey showed

All three parts of the index fell. Builders' rating of current sales of new single-family homes dropped two points to 33, which Trading Economics noted was also the lowest in 14 years. Their outlook for sales over the next six months fell five points to 32, and their gauge of traffic from prospective buyers fell five points to 18.

The index is built so that any reading above 50 means more builders see conditions as good than poor, and CNBC noted that October's reading sits well below that line. It has now fallen two months in a row, from 35 in August to 32 in September and 29 in October.

NAHB Chief Economist Robert Dietz said buyer traffic was at its lowest level since April 2012, setting aside the onset of the pandemic in April 2020. "Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines," he said.

More builders are cutting prices

In October, 43% of builders said they cut prices, up from 38% in September and 35% in August. NAHB said that was the highest share of any month from 2020 through 2026. The size of the cuts has not changed: the average reduction held at 6% for a seventh straight month. So more builders are discounting, but the typical discount is no deeper.

Sixty-five percent of builders used sales incentives in October. That makes 19 consecutive months in which at least 60% of builders have relied on them.

Rates and costs

Freddie Mac's weekly survey put the average 30-year fixed mortgage rate at 7.4% as of Oct. 15, unchanged from the week before and up from 6.27% a year earlier. NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio, said rates had "climbed well above 7% in recent weeks" and that higher gas prices and inflation had further weakened buyer traffic.

Owens said builders are also paying more for construction loans, building materials and diesel, though he said the Trump administration's efforts to advance regulatory reform are helping to ease some of the cost pressures they face. More than a third of builders reported immigration enforcement activity in their areas during the past month, which he said was delaying construction and discouraging legal workers from reporting to work.

Where it is weakest

On a three-month moving average, the West was the weakest region at 26, down two points, followed by the South at 30, down one. The Northeast slipped one point to 38. The Midwest fell three points to 40 but remained the strongest region, and NAHB called it a relatively bright spot for single-family building.

How low is low

October's reading is well above the depths of the housing crash. The index hit its all-time low of 8 in January 2009 and its all-time high of 90 in November 2020, according to NAHB. In the years since that peak, the group says, rising interest rates and affordability problems have kept readings mostly between the mid-30s and the low 50s. A reading of 29 is below that range.

The survey matters beyond builders' moods. NAHB points to research, first published in 1994 by a Federal Reserve Board economist and later revisited by its own economists, finding that the index helps predict housing starts.