Realty Check

Government 'paralysis' spooks home builders

Builder confidence down 2 points in October

Confidence among the nation's home builders slipped more than expected in October. A monthly index from the National Association of Home Builders fell 2 points from a downwardly revised September reading. The builders said it was a combination of continuing cost challenges in the market and the budget showdown in Washington.

The survey was conducted from Oct. 1 to 11, coinciding with the first 11 days of the partial government shutdown.

"A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation's debt limit have caused builders and consumers to take pause," said NAHB Chief Economist David Crowe. "However, interest rates remain near historic lows and we don't expect the level of rates to have a major impact on sales and starts going forward."

(Read more: Shutdown costs rural family $10,000)

Contractors work on a KB Home under construction at the Vicino community in San Jose, Calif.
David Paul Morris | Bloomberg | Getty Images

Crowe said he expects that once the government impasse is resolved, builder and consumer optimism will bounce back, but some builders had already reported seeing slower sales and traffic in September, before the fiscal crisis reached its latest showdown.

Each of the three index components—current sales, sales expectations in the next six months and buyer traffic—dropped 2 points. Buyer traffic, however, is the only one still mired in the negative, at 44. Fifty is the line between positive and negative. Overall sentiment now stands at 55.

Regionally, looking at a three-month average, sentiment in the South remained unchanged. Builders were less optimistic in the West and the Northeast, and more confident in the Midwest, where home prices are lowest and homes most affordable.

(Read more: Map: Tracking the recovery)

This report usually precedes the monthly release of housing starts and building permits from the U.S. Department of Commerce; those numbers will not be available, due to the shutdown, so the NAHB offered its own estimates:

"The NAHB estimate of 875,000 to 900,000 total housing starts [a seasonally adjusted annualized rate for September] is based on continuing improvement in single-family starts and ongoing volatility in multifamily construction," Crowe said.

The Commerce Department reported total housing starts in August at a seasonally adjusted annualized rate of 891,000.

(Read more: Apartment demand keeps climbing)

By CNBC's Diana Olick. Follow her on Twitter .

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