How Scary Is The Housing Market? High Mortgage Rates, Low Builder Confidence Have Buyers Spooked

Mortgage demand is at its lowest level since 1997, hurting home-builder confidence.

In fact, builder sentiment is so bad, it declined for the ninth consecutive month, according to a new study. And it's getting worse.

What Happened: The National Association of Home Builders NAHB/Wells FargoNAHB/Wells Fargo is out with its September HMI, (with preliminary October results) which is a weighted average of three separate component indices:

• Present Single-Family Sales
• Single-Family Sales for the Next Six Months
• Traffic of Prospective Buyers

Each month, a panel of around 900 home builders rates the first two on a scale of “good,” “fair” or “poor” and the last on a scale of “high to very high,” “average” or “low to very low.”

How bad is it? Builder confidence in the market for newly-built single-family homes fell nine points in October to 45. That's the lowest level since May 2014 — with the exception of the spring of 2020. (A reading above 50 means a favorable outlook; below indicates a negative).

• Builder confidence in the market for single-family sales for the next six months fell nine points to 35 — the lowest since the spring of 2012.
• Builder confidence in the market for prospective buyers fell 6 points to 25, the lowest level since the summer of 2012. In spring 2020, it was 13.

The report comes as affordability is still being negatively impacted by a combination of high-interest rates, ongoing supply chain disruptions for building materials, and high home prices.

Read Also: 30-Year Fixed Mortgages Nearly Jump To This (Not) Nice Round Number

• On a preliminary regional basis, builder confidence in each sector is below 50, some more than others for October:
• Northeast: 48
• Midwest: 38
• South: 41
• West: 25

“Housing is still slowing and has more downside to go,” said Jeffrey Roach, Chief Economist for LPL Financial. “Home builders are feeling the impact of slowing demand, as higher borrowing costs weigh on prospective home buyers.”

As an aside, a few home builder stocks to watch are:

• D R Horton Inc. DHI
• Toll Brothers Inc. TOL
• PulteGroup Inc. PHM
• NVR Inc. NVR
• Lennar Corporation LEN
• KB Home KBH