Builder confidence in the market for newly built single-family homes fell three points to 29 in October, the lowest reading since June 2012, as rising mortgage rates, higher energy and material costs and worsening labor and lot conditions weigh on project pipelines.
The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released today, shows sentiment firmly in negative territory. Any score below 50 indicates more builders see conditions as poor rather than good.
“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,” NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio, said in the announcement.
“Though builders are also contending with higher costs for construction loans, building materials and diesel, the Trump administration’s efforts to advance regulatory reform are helping to ease some of the cost pressures they face. Nationwide, more than one-third of builders reported immigration enforcement activity in their market areas during the past month, causing construction delays and discouraging legal workers from reporting to work,” Owens added.
NAHB Chief Economist Robert Dietz explained that persistent demand is colliding with tightening affordability.
“Housing remains squeezed by supply-side constraints and significant affordability challenges,” Dietz said. “Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines. As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic’s onset in April 2020.”
Price cuts, incentives increase
The decline in builder sentiment comes as the median sales price of newly built homes is at a nearly five-year low. To keep sales moving, builders are increasingly relying on price reductions and sales incentives:
- 43% of builders cut prices in October, the highest share during the 2020-2026 period.
- The average price cut remained 6% for the seventh consecutive month.
- 65% of builders used sales incentives, the 19th straight month that at least 60% reported doing so.
For homebuilders, this environment means protecting margins will depend heavily on land basis, spec strategy and the ability to partner with lenders on rate buydowns and closing-cost support. Discounting is no longer targeted to a few slow communities; for many operators, it is now a core part of the sales playbook.
What the HMI is signaling on demand
NAHB’s HMI, based on a monthly survey the group has conducted for more than 40 years, asks builders to rate current single-family home sales, expectations for the next six months and prospective buyer traffic as “good,” “fair” or “poor,” and “high to very high,” “average” or “low to very low.” Scores for each component are combined into a seasonally adjusted index.
All three major HMI components declined in October:
- Current sales conditions fell two points to 33.
- Sales expectations over the next six months dropped five points to 32.
- Prospective buyer traffic fell five points to 18.
The sharp drop in expectations and traffic underscores what many builders are seeing in their own communities: fewer qualified walk-ins, more payment-driven shoppers, and buyers stretching to make debt-to-income ratios work at today’s rates.
Regional trends: Midwest holding up better
On a three-month moving average basis, all four regions surveyed posted lower HMI scores in October:
- Northeast: down one point to 38.
- Midwest: down three points to 40.
- South: down one point to 30.
- West: down two points to 26.
The Midwest remains a relative bright spot for single-family construction, with permits up 2.9%, according to NAHB. Lower land costs and somewhat less severe regulatory burdens in many Midwestern markets are helping support new-home activity compared with higher-priced coastal metros in the West and parts of the Northeast.
