30. Are home builders cutting back? (Builder Confidence)

The short answer is yes. Home builders are pulling back, and the clearest signal is how they feel about the market right now.

In October, builder confidence fell to its lowest level since June 2012. That is a 14-year low, reached at a time when the country still needs more homes, not fewer. When the people who actually put shovels in the ground lose confidence, construction tends to follow. For brokers, buyers and sellers, that matters well beyond the new-home lot.

What "builder confidence" actually measures

The number everyone quotes is the NAHB/Wells Fargo Housing Market Index (HMI). Every month, the National Association of Home Builders surveys single-family builders on three things:

• Current sales conditions — how sales are going today;

• Sales expectations — how they expect sales to go over the next six months; &

• Buyer traffic — how many prospective buyers are walking through models

  
  

The answers roll up into an index from 0 to 100. Anything above 50 means more builders see conditions as good than poor. Anything below 50 means the opposite. The index has not been above 50 in a long time, but October's reading is in a different league.

October 2026: a 14-year low

The HMI fell 3 points in October to 29, down from 32 in September and 35 in August. It was the second straight monthly drop, and it came in below the 31 economists expected. A year ago, in October 2025, the index stood at 37.

Every piece of the index weakened:

The buyer traffic number is the one you need to focus on. At 18, it is the lowest reading since April of 2012, (setting aside the brief pandemic shock of April 2020) – model homes are very quiet. The five-point drop in sales expectations also tells you builders don't see relief coming soon.

What are builders doing? Cutting prices

The confidence drop is not just a mood. Builders are acting on it.

1. 43% of builders cut prices in October, up from 38% in September. That is the highest share seen through the 2020–2026 period.

2. The average price cut was 6%, unchanged for a seventh straight month.

3.  65% of builders used sales incentives such as mortgage rate buydowns, closing-cost help or upgrades. That makes 19 straight months with at least 60% of builders relying on them.

When four in ten builders are cutting prices and two-thirds are sweetening deals, the new-home market is clearly competing hard for a thin pool of buyers. That competition spills directly into the resale market, where sellers are now up against builders with deep pockets and rate buydown programs.

Are they actually building less? The construction data says yes

Sentiment surveys are one thing, but shovels in the ground is another. The September construction report from the Census Bureau and HUD (released October 20) confirms the pullback is real.

Starts badly missed the 1.305 million that economists expected. Completions are now running near their lowest pace seen in more than seven years.

The number I watch most closely is single-family permits. Permits are pulled before construction starts, so they tell you what builders plan to do next. Single-family permits fell 4% in September and are almost 5% below a year ago. Put that next to a 14-year low in confidence, and the message is consistent: builders are deliberately slowing the pipeline.

But amongst all the bad news, there is one bright spot. Permits for buildings with five or more units rose 5.9% to 503,000. It looks as if apartment developers may be finding their way back after the very steep slowdown in multifamily starts we saw in the second half of 2025 and into the spring of 2026.

Why builders are losing confidence

Three forces stand out:

1. Mortgage rates went the wrong way. In mid-August, the 30-year fixed rate averaged about 6.7%, (Freddie Mac). By September 24, it had crossed 7% for the first time since January 2025. By mid-October it was 7.4% while a year ago it was closer to 6.3%. On a $500,000 loan, a full point of extra interest adds roughly $330 a month to the payment. That is enough to push a lot of buyers out of qualifying range.

2. Building costs keep climbing. Builders report more expensive construction financing, building materials and diesel. Labor and lot availability are getting worse, not better. More than a third of builders also told NAHB they saw immigration enforcement activity in their markets over the past month, which they say caused construction delays and kept some legal workers off job sites. When costs rise while buyers are demanding price cuts, builder margins get squeezed from both sides.

3. Buyers are nervous. Even buyers who can qualify are hesitating. Higher gas prices and inflation are squeezing household budgets, consumer confidence has softened, and many would-be buyers are waiting to see if rates come back down. Low buyer traffic is the clearest evidence of that wait-and-see mood.

The West is taking the hardest hit

This is where the story gets personal for those of us “out West”. Builder confidence in the West plunged 10 points between September and October to 20, the lowest reading for the region since December 2011. The South, by far the largest homebuilding market, fell to 27, also its lowest since 2012 but only a month-to-month decline of 2 points.

On a three-month average, which smooths out the monthly noise, the regions line up like this:

The Midwest is the relative bright spot, with single-family permits up 2.9%. The West's weakness actually makes sense as western markets, including the Puget Sound, combine high home prices with high land and construction costs. A jump in mortgage rates hits harder when the loan amounts are bigger. Regulatory delays and impact fees add cost and time that builders in other regions don't face to the same degree.

The risk here in Washington is that we were already short of housing. A builder pullback now doesn't just cool the market; it widens a supply gap that will show up as higher prices and rents once demand returns.

What this means for brokers, buyers and sellers

For buyers: this is one of the better moments in years to shop new construction. With 43% of builders cutting prices and 65% offering incentives, there is real room to negotiate. Ask about rate buydowns in particular. A builder-paid buydown can do more for a monthly payment than a straight price cut.

For sellers of existing homes: new construction is your competition. If a builder down the road is offering a 6% price cut plus a buydown, a resale listing priced at last spring's levels will sit. Pricing right from day one matters more than it has in a long time.

For brokers: know what local builders are offering this month, not last quarter. Buyers who might have dismissed new construction as overpriced may find it pencils out better than resale right now. Being the agent who can lay those options side by side is a real advantage.

For the longer term: fewer homes started today means fewer homes available in 2027 and 2028. Housing that isn't built during a slowdown is housing we will be short of when rates ease and buyers return.

The bottom line

Are home builders cutting back? Yes, on both counts. They are cutting prices at the highest rate this decade, and they are cutting the pipeline of new homes. Builder confidence at 29 is a 14-year low, buyer traffic is at its weakest since 2012, and single-family permits are falling.

The trigger is clear: mortgage rates above 7% on top of stubborn construction costs. If rates ease, builders can turn around quickly; they did exactly that in late 2025. Until then, expect more incentives, fewer groundbreakings and a tougher road for resale sellers, especially here in the West.

The next builder confidence reading comes out in mid-November, and the October permits and starts report follows on November 18. Together they will tell us whether the pipeline keeps shrinking.

I'll be paying close attention to both.