U.S. homebuilder sentiment sank to a 14-year low as mortgage rates climbed past 7%

The National Association of Home Builders (NAHB) reported on Monday that builder confidence slid by 3 points in October to a reading of 29, its weakest showing since June 2012.

The NAHB/Wells Fargo $WFC Housing Market Index measures how builders feel about sales of new houses designed for one family. A reading above 50 means more builders view conditions as good than poor. Economists had forecast a reading of 31, according to The Wall Street Journal.

Mortgage rates have pushed past 7% over the last few weeks, and pricier fuel and rising inflation have cut into buyer traffic in most parts of the country, NAHB Chairman Bill Owens said in a statement. Builders also are paying more for construction financing, materials and diesel fuel, he said.

Over a third of builders saw immigration enforcement operations in the areas where they work in the last month, Owens said. He said the activity slowed projects and kept lawful workers from showing up at job sites.

Freddie Mac data showed the 30-year fixed mortgage rate averaged 7.40% last week.

"Housing remains squeezed by supply-side constraints and significant affordability challenges," NAHB Chief Economist Robert Dietz said in a statement. He said buyers are staying out of the market because of rising borrowing costs, pricey construction, and softer consumer sentiment. Dietz said buyer traffic is now at its weakest since April 2012, setting aside the pandemic's onset in April 2020.

All three major components of the index declined in October. Current sales conditions declined 2 points, to 33, expectations for sales over the next six months lost 5 points to reach 32, and prospective buyer traffic slid 5 points to land at 18.

NAHB said price reductions were made by 43% of builders in October, a larger share than at any point in the 2020-2026 period. The average price cut stayed at 6%, unchanged now for seven months running. Sales incentives were used by 65% of builders, extending to 19 months the stretch in which no fewer than 60% have offered them.

Three-month moving averages declined in all four regions. The Northeast fell 1 point to 38, the Midwest fell 3 points to 40, the South fell 1 point to 30 and the West fell 2 points to 26.

The index had risen 3 points to 37 in May after dropping to a seven-month low of 34 in April. Mortgage rates fell below 6% in late February, the lowest level since September 2022. They rose again as the conflict in Iran lifted oil prices and inflation concerns, which pushed up Treasury yields. The 30-year fixed rate averaged 6.65% in May.