Homebuilder Sentiment Hits Five-Month Low

Homebuilder confidence falters in face of persistently high mortgage rates and construction worker shortages, survey finds.

An aerial view of suburban houses and gardens.
(Image credit: Karl Hendon, Getty Images)

Persistently high mortgage rates of more than 7% have caused homebuilder confidence to drop below the key level of 50 for the first time in five months, according to a new report.

Builder confidence in the market for newly built single-family homes fell five points to 45 in September, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), a monthly survey that asks NAHB members to rate market conditions for new home sales now and six months from now. The five-point decline follows a six-point decline in the August index.

“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” said Robert Dietz, NAHB chief economist. 

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Currently, the average 30-year mortgage rate is at 7.18%, compared to 7.12% last week and 5.89% last year, Kiplinger recently reported. Overall, this is lower than the long-term average of 7.74%, however.

“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power,” said NAHB Chair Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “On the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes,” Huey said, adding that insurance cost and availability are also growing concerns.

More single-family home buyers are also first-time buyers

Historically low levels of resale inventory has continued to push home buyers to focus on new construction. The September HMI survey found that 42% of new single-family home buyers were also first-time buyers this year, significantly higher than the 27% “from a more normalized market in 2018,” according to the report.

The HMI survey, which also gathers member information on the traffic of prospective buyers of new homes, creates a formulata from the data to indicate, on a scale of 0 to 100, the portion of builders that are experiencing positive market conditions. 

Each of three major HMI indices saw declines in September. The HMI index gauging current sales conditions fell six points to 51, the component charting sales expectations in the next six months also declined six points to 49 and the gauge measuring traffic of prospective buyers dropped five points to 30.

If you’re in the market for your first home, these five steps could help make it a successful experience.


Joey Solitro

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.