U.S. housing market remains under pressure as builder confidence falls to a 14-year low, with over 40% of companies forced to cut prices to boost sales.

U.S. homebuilder confidence deteriorated further in October, falling to a 14-year low, as mortgage rates remain above 7%, labor shortages persist and construction costs stay elevated. At the same time, weak homebuying demand and high new-home inventory are forcing a growing number of builders to cut prices to boost sales, with pressure on the U.S. housing market continuing to intensify. Data released Monday by the National Association of Home Builders (NAHB) and Wells Fargo & Company showed that the NAHB/Wells Fargo Housing Market Index fell 3 points to 29 in October, the lowest level since June 2012 and below the median estimate of 31 in a Bloomberg survey of economists. A reading of 50 is the threshold between expansion and contraction; below 50 means more builders view market conditions as poor than as good. Notably, the U.S. homebuilder confidence index has remained below 50 for more than two years, reflecting persistent severe challenges in the housing sector. Among the components, the index measuring current sales conditions fell to 33, also a 14-year low. The index of sales expectations for the next six months, one of the core components of the overall confidence index, also fell to its lowest level since November 2022. In addition, the index of prospective buyer traffic dropped to its lowest level since the early days of the COVID-19 outbreak, indicating further weakening of market demand. The continued deterioration in builder confidence mainly reflects the increasingly prominent housing affordability problem in the United States. Mortgage rates holding above 7% have significantly increased buyers' monthly payment burdens, prompting many potential buyers to postpone purchase plans. Meanwhile, labor shortages and high building material costs continue to push up new-home construction costs, further limiting builders' pricing room. NAHB Chief Economist Robert Dietz said in a statement on Monday that the U.S. housing market remains squeezed by both supply-side constraints and severe housing affordability problems. He noted that housing demand still exists, but higher mortgage rates, persistently high construction costs and weakening consumer confidence are prompting more potential buyers to stay on the sidelines. Alongside weak demand, U.S. new-home inventory remains at a relatively high level, further intensifying builders' sales pressure. To attract buyers, more and more builders are being forced to resort to direct price cuts, buyer incentives and other concessions, but these strategies are also eroding companies' operating margins. The NAHB survey showed that the share of builders reporting cutting home prices rose to 43% in October, meaning more than 40% of surveyed builders are stimulating sales through price cuts. At the same time, about two-thirds of builders said they used some form of sales incentive this month. These incentives may help ease short-term sales pressure, but they also highlight intense competition in the current market and the profitability challenges builders face in an environment of persistently high costs. By region, builder confidence deteriorated in several major U.S. housing markets. Among them, builder confidence in the South fell to its lowest level since mid-2012; the index in the West plunged 10 points to its lowest level since late 2011. In addition, builder confidence in the Midwest also declined, with only the Northeast showing improvement. The downturn in the housing sector is also reflected in capital markets. The iShares U.S. Home Construction ETF (ITB.US), which covers U.S. homebuilders and building materials companies, has continued to decline over the past three months, indicating investors remain pessimistic about the outlook for the housing sector. As high interest rates continue to suppress homebuying demand, the market is closely watching whether U.S. homebuilding activity will slow further. The U.S. federal government will release new-home starts and building permit data on Tuesday, providing investors with the latest clues for judging residential construction activity. At the same time, the National Association of Realtors (NAR) will also release last month's pending home sales data to reflect the latest changes in housing demand.