Homebuilder sentiment falls 2 points in October, but remains near 2016 highs

Homebuilders are still feeling positive about the market, but not as much as they were in September, when a monthly survey of builder confidence hit a high for the year.

The National Association of Home Builders/Wells Fargo Housing Market Index fell 2 points in October to 63, the reading analysts had forecast. Anything above 50 is considered positive sentiment.

"Even with this month's drop, builder confidence stands at its second-highest level in 2016, a sign that the housing recovery continues to make solid progress," NAHB Chairman Ed Brady said in a statement.

A worker carries lumber as he builds a new home in Petaluma, California.
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A worker carries lumber as he builds a new home in Petaluma, California.

Shortages of lots and labor continue to be a concern, as those have driven costs higher. Don Dykstra, president of Dallas/Fort. Worth-based homebuilder Bloomfield Homes, said those concerns outweigh the bump up in mortgage rates.

"I think the large increase in home prices due to rising land costs, city impact fees, and especially labor costs have impacted the consumer more than interest rates at this point in time," he said. "Changes in building codes and city design requirements have also caused higher costs."

But rising rates could be of greater concern as new buyers try to enter the market.

"If rates move significantly higher it will definitely impact buyer's ability to qualify for a loan," said Dykstra.

Of the index's three components that fell in October — buyer traffic — went deeper into the negative, falling 1 point to 46, while sales expectations for the next six months rose 1 point to 72. Current sales conditions saw the biggest change, falling 2 points to 69.

"Sales have been a little slower the last few months. But it could be seasonal, or in the case of Dallas just because the Cowboys are playing better this year and people stay home on Sundays to watch the games instead of house shopping," said Dykstra.

Regionally, on a three-moth moving average the Northeast, Midwest and South each had 1 point gains to 43, 56 and 65, respectively. The West increased 2 points to 75.