Builder sentiment fell for the 10th straight month in October, as the total share of prospective homebuyers dropped to its lowest level since 2012, with the exception of two months during the Spring of 2020, the National Association of Home Builders' (NAHB) Eye on Housing reports. Homebuyer demand is falling at a steady pace in the wake of 7% mortgage rates and still-rising home prices, and that dwindling buyer traffic could force builders to slow their production of new single-family homes in the months ahead.
As a result, builder confidence in the market for newly built single-family homes decreased eight points in October to 38, half of its level from six months ago, the NAHB/Wells Fargo Housing Market Index (HMI) recently revealed.
High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers. This will be the first year since 2011 to see a decline for single-family starts. 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 large number of prospective buyers.
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