Homebuilder confidence continued its downward spiral in October, hitting its lowest level since August 2012, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report, released Tuesday.
In October, builder sentiment in the market for newly built single-family homes fell eight points from September to a reading of 38 points, half the level it was six months ago. This latest drop marks the 10th consecutive month of declines.
The NAHB/ HMI report is based on a monthly survey of NAHB members, in which respondents are asked to rate both current market conditions for the sale of new homes and expected conditions for the next six months, as well as traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index, in which any number greater than 50 indicates more homebuilders view conditions as favorable than not.
“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” Jerry Konter, the NAHB chairman, said in a statement.
Robert Dietz, the NAHB’s chief economist, added: “This will be the first year since 2011 to see a decline for single-family starts. And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues. While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers.”
Due to this, Konter called on policymakers to address the “worsening housing affordability crisis,” calling the current housing market as “unhealthy and unsustainable.”
Three other indices monitored by the NAHB also posted declines in October. The gauge measuring current sales conditions fell nine points, month over month, to 45, while the component analyzing sales expectations for the next six months fell 11 points to a reading of 35 and the index charting traffic of prospective buyers posted a six-point drop, to 25 points.
Regionally, the three-month moving averages for HMI scores fell in all four regions, to: 41 in the Midwest, 49 in the South, 34 in the West and 48 in the Northeast.
Another survey, the BTIG/HomeSphere State of the Industry Report, also noted sizable decreases in homebuilder outlook. According to the survey, 63% of builders saw year-over-year decreases in sales ordered per community in September and 61% reported a yearly decrease in traffic. Both of these metrics are survey-record lows.