Home builder sentiment is halved from what it was six months ago

Builder sentiment in the single-family home market has dropped by half from just six months ago, according to a new report, as mortgage rates rise.

The National Association of Home Builders (NAHB)/Wells Fargo (HMI) Housing Market Index, which measures market conditions, fell 8 points to 38 in October from a month earlier.

This is the lowest level since 2012, except for a brief dip at the start of the coronavirus pandemic. A rating below 50 is considered negative.

Builders cite the rapid rise in interest rates as a decline in confidence. The average rate on 30-year fixed bonds on Monday was 7.12%, according to Mortgage News Daily. This is 3% more than at the beginning of this year.

“High mortgage rates … have significantly weakened demand, especially among potential first-generation homebuyers,” said NAHB chairman Jerry Konter, a builder and developer from Savannah, Georgia. “This situation is unhealthy and unsustainable.”

A worker stands on the roof of a house under construction in a new residential complex in San Rafael, California.

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Of the three components of the index, current selling conditions fell 9 points to 45, while sales expectations in the next six months fell 11 points to 35. Buying traffic fell 6 points to 25.

“This will be the first year since 2011 that there will be a decline in the number of single-family homes,” said Robert Dietz, chief economist at the NAHB.

With expectations that interest rates will continue to rise, Dietz said an additional decline in single-family home construction is projected in 2023.

On a three-month moving average, sentiment in the Northeast fell 3 points to 48. In the Midwest it fell 3 points to 41. In the South it fell 7 points to 49 and in the West it fell 7 points to 34.

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