More home builders in October said they cut house prices compared with any other time this decade, the National Association of Home Builders said Monday.
It's a sign of the impact of swiftly rising mortgage rates -- and a bad omen for investors waiting for signs of a bottom on home sale margins.
Of the builders surveyed, 43% said they cut prices in October. That's the highest share reported in the period from 2020 to 2026, the trade group said. The average price reduction was 6%.
"Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines," Robert Dietz, the trade group's chief economist, said in a statement. "As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic's onset in April 2020."
In fact, home builders are more pessimistic about housing market conditions than any time since June 2012, according to the National Association of Home Builders' October Housing Market Index, which tracks home builder sentiment.
The slide, to a 14-year low reading of 29, was steeper than the drop economists had anticipated, according to FactSet. It follows the rise in mortgage rates to 7.4% in the latest week, from 6.66% at the end of August, according to Freddie Mac data.
The trade group's survey shows "the housing recession is getting even more difficult with the rise in mortgage rates," economist Peter Boockvar wrote in a reaction to the data. "Unfortunately I see time as the only cure."
That's not ideal for investors in home builders, who have long been waiting for signs that the worst is over for the companies' margins on home sales. The iShares U.S. Home Construction ETF was down 1.3% in morning trading on Monday, according to Dow Jones Market Data. The exchange-traded fund has recovered slightly since reaching a new 52-week low on Oct. 14.
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