Housing Weakness Continues, Builder Confidence Declines for 11 Consecutive Months

Elevated interest rates, stubbornly high building material costs and declining affordability conditions that are pushing more buyers to the sidelines continue to drag down builder sentiment. Builder confidence in the market for newly built, single-family homes posted its 11th straight monthly decline in November, dropping five points to 33, according to the National Association of Home Builders/Wells Fargo Housing Market Index. This is the lowest confidence reading since June 2012, with the exception of the onset of the pandemic in the spring of 2020.

"Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce," says NAHB Chairman Jerry Konter. "With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation's home builders to expand housing production.

To bring more buyers into the marketplace, 59 percent of builders report using incentives, with a big increase in usage from September to November. For example, in November, 25 percent of builders say they are paying points for buyers, up from 13 percent in September. Mortgage rate buy-downs rose from 19 percent to 27 percent over the same time frame. And 37 percent of builders cut prices in November, up from 26 percent in September, with an average price of reduction of six percent. This is still far below the 10-percent to 12-percent price cuts seen during the Great Recession in 2008.

All three HMI components posted declines in November. Current sales conditions fell six points to 39, sales expectations in the next six months declined four points to 31 and traffic of prospective buyers fell five points to 20. Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 41, the Midwest dropped two points to 38, the South fell seven points to 42 and the West posted a five-point decline to 29.