Markets
US Builder Confidence Fell to 29, the Lowest Since June 2012. 43% of Builders Are Cutting Prices, the Most on Record
The NAHB Housing Market Index of builder confidence fell three points to 29 in October, below the 31 economists expected and its lowest reading in more than fourteen years. Buyer traffic dropped to 18, the weakest since April 2012 outside the pandemic month, 43% of builders cut prices and 65% offered incentives. Mortgage rates above 7%, higher fuel and material costs and immigration enforcement on job sites were the reasons the association gave.
American homebuilders have not been this pessimistic since the housing market was still climbing out of the financial crisis. The National Association of Home Builders' monthly index of builder sentiment fell three points to 29 in October, the association said on Monday, October 19, against a Trading Economics consensus of 31 and a September reading of 32. Any number below 50 means more builders rate conditions poor than good; 29 is the lowest since June 2012.
Every component fell. The index of current sales conditions dropped two points to 33, sales expectations for the next six months fell five points to 32, the lowest since November 2022, and the gauge of prospective buyer traffic fell five points to 18, which the NAHB said was the weakest since April 2012 if the first month of the pandemic is excluded. Regionally, the three-month moving averages were 38 in the Northeast, 40 in the Midwest, 30 in the South and 26 in the West, all lower on the month.
Builders are responding with their price lists. Forty-three percent cut prices in October, the highest share the survey has recorded in the 2020 to 2026 period, and the average cut stayed at 6% for a seventh consecutive month; 65% used sales incentives such as mortgage-rate buydowns, the nineteenth straight month in which at least 60% have done so. "Mortgage rates have climbed well above 7% in recent weeks, and higher gas prices and inflation have further weakened buyer traffic across much of the country," said NAHB chairman Bill Owens, a builder from Worthington, Ohio, who also cited the cost of construction loans, materials and diesel, and said more than a third of builders had reported immigration enforcement activity in their markets in the past month. Chief economist Robert Dietz said housing "remains squeezed by supply-side constraints and significant affordability challenges."
The reading landed in a bond market that had just given back part of its mid-October rally: the 10-year Treasury yield rose six basis points to 5.15% on Monday, and the 30-year mortgage rate quoted on HousingWire's ticker was 7.52%. Homebuilders had rallied with yields the week before; a survey saying buyers have stopped coming to the model homes is the counter-argument. The next data point is Tuesday at 8:30 a.m. ET, when the Census Bureau publishes September housing starts and permits, with consensus near 1.30 million and 1.40 million at annual rates, followed by pending home sales at 10:00 a.m.
For a Federal Reserve that meets on October 28, the survey is one of the few pieces of evidence that 5% Treasury yields are doing their work. Builder sentiment at 29 with inflation still above target is a combination the Fed has not faced since the 1980s, and it is the reason rate-sensitive stocks can rise and fall 3% in a day on a single yield move. The housing data this week will show whether the builders' pessimism is already visible in the starts.