U.S. homebuilder confidence unexpectedly falls to a 14-year low, hit by both high interest rates and cost pressures

The US housing construction market remains under sustained pressure, with industry confidence accelerating its decline to the lowest level in over a decade.

The Housing Market Index, jointly published by the National Association of Home Builders (NAHB) and Wells Fargo, fell by 3 points this month to 29, the lowest since June 2012 and below the median expectation of 31 among economists surveyed by Bloomberg. The index has stayed below the 50-point threshold between expansion and contraction for over two years, indicating that the majority of builders continue to view market conditions as unfavorable.

Mortgage rates remain above 7%, combined with labor shortages and persistently high construction costs, increasing the pressure on builders. NAHB Chief Economist Robert Dietz stated:

"The housing market remains constrained by supply-side limitations and severe affordability challenges. Higher mortgage rates, elevated construction costs, and weakening consumer confidence are causing more potential buyers to hold back."

The outlook for the industry remains pessimistic. The iShares US Home Construction ETF, which tracks home builders and building material companies, has been declining continuously over the past three months.

According to the NAHB report, the current sales sub-index dropped to 33, matching a 14-year low; the index for expected sales over the next six months slid to its weakest level since November 2022; and the index for prospective buyer traffic fell to the lowest point since the onset of the COVID-19 pandemic.

Multiple indicators deteriorated simultaneously, reflecting a broadly pessimistic outlook among builders for the near-term market trend. Rising borrowing costs continue to suppress homebuying demand, while new home inventories remain high, creating significant pressure from both supply and demand sides.

In the face of weak demand, builders have been forced to step up promotional efforts to attract clients. NAHB’s survey shows that the proportion of builders reporting price reductions reached 43%, and about two-thirds of builders implemented various incentive measures this month, resulting in reduced operating profit margins.

Regionally, builder confidence in the South declined to its lowest level since mid-2012, the West index plunged by 10 points to its weakest since the end of 2011, and confidence in the Midwest also retreated, with only the Northeast seeing a modest rebound.

The US federal government will release housing starts and building permit data on Tuesday, and the National Association of Realtors (NAR) will also publish last month’s pending home sales data, providing the market with further signals on the housing market’s climate.