In October, homebuilder confidence hit its lowest levels since January, as indicated by a report released on Tuesday. This decline signals that soaring mortgage rates are putting pressure on the optimism of construction firms and affecting potential buyer traffic.
The confidence index has now fallen for the third consecutive month, dropping from a revised September reading of 44 to 40, according to the report from the National Association of Homebuilders (NAHB) and Wells Fargo. This figure also falls below the expectations of economists polled by Reuters, who anticipated an unchanged index of 44.
Alicia Huey, Chairman of the NAHB, commented, “Builders have reported reduced levels of buyer traffic, particularly among younger buyers who are being priced out of the market due to higher interest rates. The increase in rates is also raising the cost of builder development and construction loans and impacting their availability, which is affecting supply and contributing to reduced housing affordability.”
Builder sentiment began declining in August, coinciding with the period when home loan rates surpassed 7%. As a result of the Federal Reserve’s campaign to raise interest rates, mortgage rates have been steadily increasing since the previous year and are currently at their highest level in two decades.
During the first half of 2023, demand for new homes surged as high rates discouraged existing homeowners from selling, thus limiting housing inventory and making new construction more attractive. Buyer traffic reached its peak in July at 40 but has since dropped to 26 in October, the lowest level since January.
To enhance affordability and stimulate sales, builders have once again reduced prices this month, with 32% of them cutting prices in October. Another index tracking present sales conditions declined by 4 points to 46, while the outlook for sales over the next six months fell to 44 from 49 in the previous month.