U.S. homebuilder confidence fell further into contraction territory in October, with high mortgage rates, rising construction costs and more buyers canceling deals weighing on demand and builders’ margins. The NAHB/Wells Fargo Housing Market Index dropped three points to 29, its lowest reading since June 2012, when the housing market was still absorbing the effects of the 2008 financial crisis.
A reading below 50 indicates that builders generally view market conditions as poor. Affordability pressures, higher material prices and cancellations are compounding the effect of expensive financing on new-home sales.
Pending sales hit a 14-year low
High borrowing costs have suppressed U.S. home sales for an extended period, and signs of a market freeze have intensified in recent months. Capital Economics estimates that home sales in 2026 could post their weakest annual performance since 2011. Redfin estimates that, excluding the unusual slowdown during the pandemic, pending home sales in September fell to their lowest level in 14 years.
Weak demand is also showing up in new-home transactions. As affordability worsens, some buyers are backing out after signing contracts. Housing research firm Zelman estimates that the cancellation rate for home construction in the western U.S. has risen to its highest level since November 2023. Builders are having to reassess plans for starting projects and setting prices.
30-year mortgage rates reach 7.4%
Financing costs remain a central source of pressure on the housing market. Freddie Mac said the average rate on a 30-year fixed mortgage reached 7.4% last week, its highest level in three years. Combined with still-elevated home prices in many markets, the increase is prompting prospective buyers to delay purchases.
Builders, meanwhile, are not seeing their costs fall alongside demand. Prices for building materials and supplies sold by distributors rose 28.8% year over year in September, according to the relevant producer price index data. At the same time, 43% of homebuilders cut prices in October, the largest share since 2020. Discounts and other incentives add to pressure on project margins.
Labor shortages add to construction delays
NAHB Chairman Bill Owens said more than one-third of builders reported that immigration enforcement actions had delayed construction or discouraged some workers from showing up. A smaller labor pool could also push wages higher as employers compete to attract and retain workers.
NAHB Chief Economist Robert Dietz said housing remains squeezed by supply constraints as well as affordability problems. The pressure is not limited to what buyers can afford: builders are also struggling to balance material and labor expenses against the prices they can charge.
Economists see little near-term relief for sales
Oxford Economics economist Sarah Godfrey said October’s weak confidence reading was consistent with the firm’s view that the U.S. housing market could remain stagnant throughout next year. If interest rates stay high for longer, prospective buyers are likely to continue postponing purchases.
Goldman Sachs expects housing demand to remain weak over the coming months, with existing-home sales potentially continuing to decline. Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, expects new-home sales to slow “significantly” following the recent sharp rise in mortgage rates. Given the latest rate moves, he also said builder confidence could fall further over the next one to two months.
The NAHB index continues to signal contraction in homebuilding activity. Interest rates, prices, contract cancellations and labor availability remain key pressures on the market.