Builder confidence falls to lowest since 2012

Builder confidence fell three points to 29 in October, the lowest reading since June 2012, according to the National Association of Home Builders and Wells Fargo Housing Market Index. Builder confidence has now stayed below 50 for 18 months in a row, a level that means more builders view conditions as poor than good. The drop came as mortgage rates climbed above 7 percent, and buyer traffic fell to its weakest level since April 2012, outside the early pandemic months.

Builder confidence is based on a survey of builders, and it covers current sales conditions, sales expectations for the next six months, and traffic from prospective buyers. All three parts fell in October. Current sales conditions slipped to 33, sales expectations fell to 32, and prospective buyer traffic fell to 18.

Builder confidence and buyer traffic

Builder confidence is closely tied to what buyers can afford each month. National Association of Home Builders Chairman Bill Owens said mortgage rates climbed well above 7 percent in recent weeks, and higher gas prices and inflation further weakened buyer traffic across much of the country. He also said builders face higher costs for construction loans, building materials and diesel. Those costs sit on top of weaker demand, and they leave builders with less room to absorb price cuts.

Owens said more than one third of builders reported immigration enforcement activity in their market areas during the past month. He said that activity caused construction delays and discouraged legal workers from reporting to work. For home building firms, delays can raise costs and push completion dates back, even when demand is soft.

NAHB Chief Economist Robert Dietz said housing remains squeezed by supply limits and affordability problems. He said demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines. Dietz said buyer traffic has fallen to its lowest level since April 2012, outside the pandemic onset in April 2020. Builder confidence readings matter because traffic is an early sign of future sales, and a weak reading tends to precede slower contract activity.

Housing starts and price cuts in home building

The wider week in housing also showed single-family starts and permits declined, according to a RealtyWire summary of the week. Housing starts are a count of homes where building work has begun, and a fall in starts suggests builders are starting fewer homes in response to weak sales. Builder confidence at this level can slow home building, and that slower pace can also affect suppliers, trades workers and local economies that depend on new construction work. The US housing market therefore feels the effect in more than one place, from the builder yard to the mortgage desk.

Price cuts became more common in October. The survey found 43 percent of builders cut prices, the highest share during the 2020 to 2026 period. The average price cut stayed at 6 percent for a seventh month in a row. In addition, 65 percent of builders reported using sales incentives, the 19th month in a row that at least 60 percent of builders did so. Incentives can include mortgage rate buydowns, closing cost help or upgrades, and they are often used before a builder cuts the headline price of a home.

What the US housing market faces next

The US housing market now faces a test of how long buyers will wait. Pending sales fell 7.3 percent in September, according to the week in housing summary, and that fall came before the October builder survey. A fall in pending sales points to fewer completed sales in the months that follow, because pending sales count signed contracts that have not yet closed. Builders may therefore see weak sales for a time even if mortgage rates ease a little.

For buyers, the survey points to more room to negotiate in some places, but it does not point to easy borrowing. Mortgage rates above 7 percent still set the monthly payment, and that payment is the main barrier for many households. For builders, the choice is between cutting prices, offering incentives, or slowing new work until demand returns. Builder confidence in October shows many builders are doing more than one of those things at once, with price cuts at a recent high and incentives in wide use. The next survey will show whether that approach brings buyers back, or whether builder confidence stays near its lowest level since 2012.