Single-family builder confidence fell 3 points to 29 in October, the lowest reading of the NAHB/Wells Fargo Housing Market Index since June 2012. The National Association of Home Builders released the number on Oct. 19, and the details underneath it are worse than the headline.
All three components dropped. Current sales conditions slipped 2 points to 33. Sales expectations for the next six months fell 5 points to 32. Prospective buyer traffic fell 5 points to 18, which NAHB says is the weakest since April 2012 if you set aside the April 2020 pandemic shock. Reuters had polled economists at 31.
Price cuts and incentives in the builder sentiment survey
The share of builders cutting prices hit 43%, the highest of any month from 2020 through 2026. The average cut held at 6% for a seventh straight month. Sixty-five percent used sales incentives, the 19th consecutive month at 60% or more.
That combination says something about margins. When the size of the average cut stays flat but more builders take it, the discounting is spreading across the market rather than deepening at the shops already under pressure. Builders are buying down rates and absorbing closing costs to move spec inventory, and that only works as long as there’s margin left to give.
NAHB Chairman Bill Owens said mortgage rates “have climbed well above 7% in recent weeks.” Freddie Mac’s survey put the 30-year fixed average at 7.40% for the week of Oct. 15, flat with the week before and up from 6.27% a year earlier. Owens also pointed to higher costs for construction loans, materials and diesel. Chief economist Robert Dietz said demand persists, but rates, elevated construction costs and weaker consumer confidence are keeping buyers on the sidelines.
Regional housing market index readings
The three-month moving averages fell in every Census region. The West is weakest at 26, down 2. The South, where most single-family starts happen, is at 30, down 1. The Midwest fell 3 to 40 and the Northeast slipped 1 to 38. None is within 10 points of the 50 line that separates good conditions from poor ones, and the national index has now been below 40 for 18 months.
What it means for residential contractors
For framers, concrete subs and site contractors who depend on production builders, the traffic number is the one to watch. Buyer traffic leads sales, and sales lead starts. At 18, traffic suggests the spec pipeline will keep shrinking into winter as builders try to clear unsold homes before breaking ground on new ones.
It also lines up with what builders told NAHB about crews: they report wider labor shortages than in the 2004-06 boom even with starts running far lower. Remodelers have held up better, with the Remodeling Market Index at 62 in the third quarter.
The Census Bureau’s September housing starts report is scheduled for Oct. 20. In August, single-family starts ran at a 918,000 annual rate. With 43% of builders discounting, a print near that level would mean builders are still starting homes they’ll have to cut prices on to sell.