Home Builder Confidence Drops to Lowest Since January

Homebuilders' doubts about the housing market increased in September, as high interest rates continued to take their toll.

A report released Tuesday shows builder confidence fell to its lowest level since January, reflecting sky-high mortgage rates that are weighing on construction firm optimism and customer interest. National Association of Homebuilders (NAHB)/Wells Fargo reported that the confidence index fell for the third consecutive month to 40 from 44 in September.

Builder sentiment began slipping in August when home loan rates surpassed 7%. The Federal Reserve's rate-hike campaign has resulted in steadily rising mortgage rates since last year, which have now reached a two-decade high.

Higher Rates Increasing Costs and Availability

Indicators that contribute to the overall builder-confidence index fell on all three fronts. Builders' outlook on current sales conditions dropped by four points, and while they reported slower prospective buyer traffic, as that index decreased by four points. An assessment of sales expectations for the next six months also fell by five points.

“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,” said NAHB Chairman Alicia Huey 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."

Builders Slash Prices to Entice Consumers

In the first half of 2023, high interest rates discouraged homeowners from selling, limiting inventory and increasing new home demand. In July, buyer traffic reached 40, but fell to 26 in October, the lowest since January.

With 32% of builders cutting prices in October, builders are trying to make their homes more affordable and boost sales.