Homebuilder sentiment drops to a decade low, as builders add more incentives

Contractors work on concrete slabs in the Cielo at Sand Creek by Century Communities housing development in Antioch, California, on Thursday, March 31, 2022.

Homebuilder sentiment in the single-family housing market fell to the lowest level in a decade in November as builders continue to struggle with higher costs for labor and materials.

The National Association of Home Builders' sentiment index fell from October to November. That is the eleventh straight monthly decline and the lowest level since June 2012 with the exception of a very brief drop at the start of the Covid-19 pandemic.

Builders sentiment was 83 a year ago.

Current sales conditions fell 6 points to 39 and sales expectations fell 4 points to 31. The number of buyer traffic fell.

The chairman of the NAHB said that higher interest rates have weakened demand for new homes.

Builders are having to offer better deals to potential buyers in the face of mortgage rates that are more than double what they were at the beginning of the year. The number of builders who used incentives increased from September to November.

In the month of November, 25% of builders said they paid points for buyers, up from 13% in September. Mortgage rate buy downs increased to 27%.

37% of builders cut prices in November, up from 26% in September, with an average price reduction of six percent. The price cuts are only a small fraction of what builders offered in 2008.

Robert Dietz said that even as home prices moderate, building costs, labor and materials have yet to follow.

On a three-month moving average, builder sentiment fell in the Northeast. It fell 2 points in the Midwest. It fell 7 points in the South and 5 points in the West.