The business of building homes is in a deep slump.
The National Association of Home Builders said Tuesday that its monthly confidence index fell 8 points to 38 in October. This is the tenth straight month of falling confidence, the longest stretch of declines on record.
A year ago, the index was at a robust 90. Outside of the first months of the pandemic, this is the lowest level since 2012.
Economists had expected a shallower decline to 44 after the September read of 46. Any number lower than 50 indicates that builders regard conditions as poor rather than good.
All three components of the index were down sharply. The measure of current sales conditions dropped 9 points. The metric for sales expectations six months ahead declined by 11 points. The buyer traffic gauge dropped six points.
Builder confidence was down in all four geographic regions, led by the south and the west—the two biggest markets for home building.
Interest rates have risen sharply as the Fed has sought to squeeze inflation out of the economy. The 30 fixed rate began the year around seven percent and recently topped seven percent. That has hurt hoousing affordability and driven both buyers and sellers out of the market.
Builders expect there will be a decline in single-family starts this year, according to the trade group. That would be the first annual decline since 2011.
“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. 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.”
“This situation is unhealthy and unsustainable,” the association’s chairman Jerry Konter said in a statement. “Policymakers must address this worsening housing affordability crisis.”