Homebuilder Confidence Sinks to a 14-Year Low as Mortgage Rates Climb Past 7.4 Percent
America’s homebuilders are losing faith in the market. Confidence among builders of new single-family homes fell three points to 29 in October, the lowest reading since June 2012, according to the National Association of Home Builders. Economists had expected a far milder decline, to 31.
The survey lands as borrowing costs grind higher. The average 30-year fixed mortgage rate hit 7.40 percent last week, according to Freddie Mac, the highest in nearly three years and up sharply from 6.27 percent a year earlier. As mortgage rates topped 7 percent earlier this fall, would-be buyers have been pushed further from reach, and the freeze on new construction has only deepened since.
Costs pile up on both sides of the deal
Builders are being squeezed from two directions. Buyers are backing away, with the survey’s measure of prospective buyer traffic falling five points to 18, the weakest since April 2012 outside the pandemic’s onset. At the same time, builders face rising construction loan costs, pricier building materials and diesel, and persistent labor shortages.
Industry leaders say the pressure goes further. More than one third of builders reported immigration enforcement activity in their markets over the past month, causing construction delays and discouraging legal workers from reporting to work, NAHB chairman Bill Owens said. Reuters reported that rising energy costs tied to the Middle East conflict and tariffs on imported materials are adding to the strain.
Price cuts spread as inventory builds
To keep deals moving, a record share of builders is slashing prices. The association said 43 percent of builders cut prices in October, the highest share in the survey’s history, while the average reduction held at 6 percent for a seventh straight month. Two thirds of builders reported using sales incentives, the 19th consecutive month that at least 60 percent have done so.
Pending home sales have already been sliding as buyers choose to rent rather than lock in expensive mortgages, and sagging demand has left builders holding excess inventory of unsold new homes. That overhang is discouraging fresh groundbreakings on single-family projects.
The outlook reaches well beyond the industry. Housing sits at the center of what economists call an affordability crisis heading into the November 3 midterm elections, Reuters reported, and the survey’s measure of future sales expectations dropped five points to 32. As NAHB chief economist Robert Dietz put it, housing remains squeezed by supply constraints and significant affordability challenges.
