U.S. homebuilder confidence rose to a six-month high in October, driven by hopes that easing mortgage rates could boost housing demand and help clear excess inventory that has slowed new construction in recent months.
However, ongoing economic uncertainty and a soft labor market may limit the expected gains from lower borrowing costs. According to the Federal Reserve’s Beige Book, overall economic activity has shown little change in recent weeks, and hiring demand remains muted.
“Mortgage rates have fallen only slightly over the past three months, and households are still anxious about the job market outlook, meaning housing demand will likely stay weak,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Tombs added that a meaningful recovery in housing demand, construction, and sales is unlikely before mid-2026.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index climbed five points to 37 in October, marking its highest level since April. Despite this improvement, the index has stayed below the 50-point breakeven threshold for 18 consecutive months. Economists surveyed by Reuters had expected only a modest rise to 33.
Higher mortgage rates have weighed heavily on the housing market, leading to a surplus of unsold new homes. Although borrowing costs have eased as the Federal Reserve continues to cut interest rates, home buying has yet to rebound significantly as consumers remain cautious amid broader economic headwinds.
“The housing market still faces challenges,” said NAHB Chairman Buddy Hughes. “While the luxury market shows steady demand, most potential buyers remain on the sidelines.”
🏠 Housing Market Challenges Persist
The latest NAHB report underscores a K-shaped economy, where higher-income households continue to drive spending — particularly on luxury homes and travel — while middle- and lower-income buyers remain constrained by rising prices and limited job growth.
Tariff-driven goods inflation and a stagnant labor market are further pressuring budgets, limiting purchasing power for many families.
In October, the NAHB survey showed gains across several key measures:
- Current sales conditions rose four points to 38.
- Future sales expectations jumped nine points to 54.
- Prospective buyer traffic improved by four points to 25.
Builders are increasingly cutting home prices to attract buyers. About 38% of builders reported price reductions, with the average cut rising to 6%, the largest in a year, up from a steady 5% in prior months.
Meanwhile, new housing inventory fell in August after holding near its highest levels since 2007.
The ongoing government shutdown has also disrupted key housing-related operations, halting economic data collection and delaying flood insurance processing — potentially slowing home sales in states like Maryland, Virginia, North Carolina, and Florida.
According to NAHB Chief Economist Robert Dietz, new single-family building permits rebounded in September after hitting a two-year low in August. Dietz noted that the October increase in builder sentiment could point to a 3% rise in permit activity once official data is released.
