Easing mortgage rates drive builder confidence higher

Despite continued macroeconomic uncertainty, homebuilders are feeling more confident. 

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)’s builder confidence gauge rose five points from September to a reading of 37 in October, according to data released on Thursday. But while builders may be feeling more confident, there are still signs that conditions are challenging.

According to the data, 38% of builders reported cutting prices in October. This share has hovered between 37% and 39% since June. But while this measure has stayed steady, the average price reduction rose to 6% after averaging 5% for the past several months. The last time builders reduced prices by 6% was in October 2024. 

While the size of the average price cut increase, the use of sales incentives remained at 65%, the same as in September.

“The HMI gain in October is a positive signal for 2026 as our forecast is for single-family housing starts to gain ground next year,” Robert Dietz, the NAHB’s chief economist, said in a statement.

“The 30-year fixed-rate mortgage fell from just above 6.5% at the start of September to 6.3% in early October. Combined with anticipated further easing by the Federal Reserve, builders expect a slightly improving sales environment, albeit one in which persistent supply-side cost factors remain a challenge.”

In addition, the NAHB reported that homebuilders’ gauge of current sales conditions rose four points to 38. The gauge measuring traffic of prospective buyers posted a four-point gain to a reading of 25, while the component charting sales expectations over the next six months jumped nine points to 54, its highest reading since January 2025.

“While recent declines for mortgage rates are an encouraging sign for affordability conditions, the market remains challenging,” NAHB chairman Buddy Hughes said in a statement. “The housing market has some areas with firm demand, including smaller builders shifting to remodeling and ongoing solid conditions for the luxury market. However, most home buyers are still on the sidelines, waiting for mortgage rates to move lower.”

Regionally, the HMI’s three-month moving average held steady in the Midwest (42), while the South (31), West (28) and Northeast (46) all posted two-point increases from September.

The report also addressed the anticipated lack of construction data due to the current government shutdown.

“Based on modeling of historical data, the October increase for the HMI suggests an approximate 3% increase for the September single-family permit data on a seasonally adjusted annual rate basis,” Dietz said. “Our model suggests a 2% to 4% range for the increase based on the statistical relationship.”