Rising mortgage rates, energy and material costs, and worsening labor and lot conditions have pushed builder sentiment to a 14-year low.

Builder confidence in the market for newly built single-family homes fell three points to 29 in October, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The reading was the lowest since June 2012.

Housing remains squeezed by supply-side constraints and significant affordability challenges. Mortgage rates have climbed well above 7% in recent weeks. Though builders are also contending with higher costs for construction loans, building materials and diesel, the administration’s efforts to advance regulatory reform are helping to ease some of the cost pressures they face.

Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines. As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic’s onset in April 2020.

Nationwide, more than one-third of builders reported immigration enforcement activity in their market areas during the past month, causing construction delays and discouraging legal workers from reporting to work.

The latest HMI survey found that 43% of builders cut prices in October, the highest share during the 2020-2026 period. The average price cut remained at 6% for the seventh consecutive month. Meanwhile, 65% of builders reported using sales incentives in October, the 19th straight month at least 60% of builders have done so.

Derived from a monthly survey that NAHB has been conducting for more than 40 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three of the major HMI indices posted losses in October. The index measuring current sales conditions fell two points to 33, the index gauging future sales expectations dropped five points to 32 and the index charting prospective buyer traffic fell five points to 18.

Looking at the three-month moving averages for regional HMI scores, the Northeast dropped one point to 38, the Midwest fell three points to 40, the South fell one point to 30 and the West posted a two-point decline to 26. The Midwest is a relatively bright spot for single-family home building, with permits up 2.9%

The HMI tables can be found at nahb.org/hmi.