Builder survey shows conditions continue to weaken

According to the monthly HomeSphere/BTIG builder survey, demand trends overall were exceedingly weak in October. 

Home sales continued to fall, with a survey-record high 71% of builders reporting year-over-year decreases in sales (vs. 23% in October 2021). Traffic also remained slow — just 11% of builders reported YOY traffic increases, while 70% saw YOY declines (vs. 61% last month).  

More builders continue to compensate by moderating pricing activity and increasing sales incentives. 56% of builders lowered some base prices in October (vs 47% last month and 11% in October 2021) and 61% increased sales incentives on at least some homes (vs. 44% last month). 

And business conditions that are already weak and getting weaker. 

According to BTIG analyst Carl Reichardt, “Conditions continued to deteriorate in October given higher mortgage rates, fear of falling real estate values and weaker economic confidence among consumers, a lag in some private builder reactions to negative conditions and to some extent seasonality.” 

Reichardt believes the NAHB Housing Market Index, expected November 16, will come in lower than the current Factset consensus expectation of 36 (the prior month's reading was 38).

Other highlights from the monthly report:

• Sales and traffic trends are extremely soft: Only 7% of builders reported higher YOY sales vs. 42% in October 2021. 71% saw a YOY decrease in orders vs. 63% last month and 23% in October 2021. Only 11% reported an increase in YOY traffic vs. 12% last month. 70% saw a decline, compared to 61% last month.

• Sales and traffic relative to expectations also continue to weaken: A survey record-low 7% of respondents saw sales as better than expected, while a survey-record high 55% saw sales as worse than expected. Just 12% saw better-than-expected traffic, with 45% seeing worse-than-expected traffic. 
• Price cuts and sales incentives are at survey record highs: The number of builders raising prices decreased to a survey record low and the number of builders lowering prices increased to a survey record high. 12% of builders raised some, most, or all base prices in October, from 24% last month, while 47% cut some, most or all base prices vs. 33% in August.