Homebuilding sentiment drops to its lowest level in a decade

Homebuilding sentiment in the single-family housing market fell to a decade low in November, as builders continue to struggle with rising labor and material costs and lower demand from homebuyers.

The National Association of Home Builders monthly sentiment index fell 5 points from October to 33. This is the 11th consecutive monthly decline and the lowest since June 2012, barring a very brief dip at the start of the Covid-19 pandemic that was followed by a strong rebound.

A year ago, construction sentiment hit 83.

Among the three components of the index, current sales conditions fell 6 points to 39, and sales forecasts for the next six months fell 4 points to 31. Buyers’ movement fell 5 points to 20.

“High interest rates have significantly dampened demand for new homes as buyer traffic has become increasingly scarce,” said Jerry Konter, chairman of NAHB, a homebuilder and developer from Savannah, Georgia.

Faced with mortgage rates more than double what they were at the start of this year, builders are having to offer potential buyers better deals. NAHB said 59% of builders reported using incentives, a significant increase from September to November.

In November, 25% of builders reported paying buyers points, up from 13% in September. Mortgage purchases rose to 27% from 19% over the same period.

In addition, 37% of builders cut prices in November, up from 26% in September, with an average price drop of 6%. However, price cuts are only about half of what builders made in 2008 during the housing crash and Great Recession.

“Even with home prices moderating, construction, labor and material costs — especially for concrete — have yet to follow,” said Robert Dietz, NAHB’s chief economist.

Regionally, on the 3-month moving average, construction sentiment in the Northeast fell 6 points to 41. In the Midwest, it fell 2 points to 38. In the South, it fell 7 points to 42 and fell 5 points to 29 in the West.