Homebuilder sentiment dropped to a 10-month low in October as rising mortgage rates continue to impact the housing market, according to new data from the National Association of Home Builders/Wells Fargo. The association’s monthly Housing Market Index fell four points to 40, the lowest level since January.
The decline signals mounting challenges for homebuilders as interest rates on 30-year fixed mortgages have climbed above 7% this year – the highest level since 2002. This rapid rise in rates is pricing many prospective buyers out of the market and slowing home sales.
“Builders are reporting traffic and sales are evaporating in recent weeks as mortgage rates spike,” said NAHB Chief Economist Robert Dietz. He noted that over 60% of builders are using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions.
The cooling housing market will likely have ripple effects on the broader economy. Housing is a major driver of economic growth, so a pronounced slowdown could negatively impact GDP growth. Fewer new home constructions also means reduced supply, which may prop up home prices despite waning demand.
NAHB Chairman Jerry Konter warned, “The housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped pushed mortgage rates above 7%.”
The decline in builder sentiment confirms a housing market slowdown is underway as the Fed battles the highest inflation in 40 years. With mortgage rates projected to remain elevated into 2023, economists expect housing to be a drag on the economy next year.
