Home builder confidence in October fell to the lowest level since January due to stubbornly high mortgage rates that have climbed to a 23-year high, the National Association of Home Builders (NAHB) reports.
The association’s builder confidence index fell four points to a score of 40 – down from a downwardly revised September reading.
This is the third consecutive monthly drop in builder confidence.
“Builders have reported lower levels of buyer traffic, as some buyers, particularly younger ones, are priced out of the market because of higher interest rates,” says Alicia Huey, chairman of NAHB, in a statement. “Higher rates are also increasing the cost and availability of builder development and construction loans, which harms supply and contributes to lower housing affordability.”
Since late September, mortgage rates are up nearly 40 basis points, with the average rate for a 30-year around 7.57%, according to Freddie Mac.
Interest rates have increased on the Federal Reserve’s apparent higher-for-longer monetary policy stance, better than expected macro growth during the third quarter, and longer-term concerns over government budget deficits.
“The housing affordability crisis can only be solved by adding additional attainable, affordable supply,” says Robert Dietz, chief economist for NAHB. “Boosting housing production would help reduce the shelter inflation component that was responsible for more than half of the overall Consumer Price Index increase in September and aid the Fed’s mission to bring inflation back down to 2%. However, uncertainty regarding monetary policy is contributing to affordability challenges in the market.”
As a result of the extended high interest environment, many builders continue to reduce home prices to boost sales. In October, 32% of builders reported cutting home prices, unchanged from the previous month but still the highest rate since December 2022 (35%). The average price discount remains at 6%.
Meanwhile, 62% of builders provided sales incentives of all forms in October, up from 59% in September and tied with the previous high for this cycle set in December 2022.
Photo: Paul Brennan from Pixabay