Homebuilder Confidence Falls for Record Tenth Straight Month

Home construction companies continue to be stuck in a deep rut, as confidence in the market falls once again this month.

Rising mortgage rates and building material shortages have made new housing less affordable for most of the year, pushing away first-time buyers.

The National Association of Home Builders (NAHB) reported on Oct. 19 that its monthly Wells Fargo Housing Market Index fell eight points, to 38 this month for the tenth month in a row. This is the longest stretch of declining confidence on record.

“This situation is unhealthy and unsustainable,” said NAHB Chairman Jerry Konter in a press statement.

“Policymakers must address this worsening housing affordability crisis.”

Homebuilder sentiment on the index was strong, at 90 only a year ago. A reading above 50 indicates a healthy home-building market. Economists were expecting a softer decline, to 44, this month, after it hit 46 in September.

With the exception of the early part of the pandemic in 2020, when the country was on lockdown, rates now are at their lowest level since August 2012.

All three primary measures on the index were down sharply, with current sales conditions dropping nine points, while the metric for sales expectations over the next two quarters fell by 11 points. The measure for prospective homebuyer traffic dropped six points, to 25.

Homebuilder confidence was down across the country, led by the popular markets in the south and the west, which had a major building boom until this year.

Interest Rate Hikes and the Housing Market

The housing market has suffered heavily due to the Federal Reserve’s aggressive interest -ate hike policy, which is targeted at the worst inflation levels since 1981.

The central bank has lifted its benchmark policy rate from near zero to a range of 3.00-3.25 percent since March. The federal funds rate is now expected to be at the 4 percent level by the end of the year, as, currently, inflation shows no sign of abating.

The Fed is unlikely to pause its rate hikes until next year, with inflation currently at an 8.2 percent annual pace.

This has caused the popular 30-year fixed-rate loan to rise to nearly 7 percent, its highest level since 2006, causing sales of new and existing homes to tumble roughly 25 percent since January.

Further, home construction companies expect a decline in single-family starts this year, according to the NAHB.

“This will be the first year since 2011 to see a decline for single-family starts,” said NAHB Chief Economist Robert Dietz.

“And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”

Dietz added, “While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers.”

The federal government is expected to publish the September figures for the number of new home