The NAHB index is doing double duty this month, serving as a stand-in for missing housing starts data. (Photo by Justin Sullivan/Getty Images)
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The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index rose five points in October to 37, its highest level since April and the biggest month-over-month improvement since January 2024. The index, based on a monthly survey of single-family builders, measures confidence in current and expected sales conditions on a scale of 0 to 100. Readings above 50 indicate that more builders see conditions as good than poor, meaning that pessimism, while abating, is still widespread.
The October data is particularly useful for analysts trying to gauge housing activity during the government shutdown. With the Census Bureau expected to delay its housing construction report, NAHB says its index can serve as a proxy for trends in single-family permits. Robert Dietz, chief economist at NAHB said modeling of historical data suggests the October increase in builder sentiment points to about a 3% rise in September permits.
Created in 1985, the survey asks builders to rate current sales, expected sales over the next six months, and traffic of prospective buyers. The index hit a record high of 90 in late 2020 when mortgage rates hovered near historic lows, then plunged as rates climbed in 2022 from 83 in January of that year to 31 in December when the Federal Reserve raised interest rates by half a percentage point to the, then highest level in 15 years.
More recently, sentiment fell to 32 in August and September of this year, its lowest level since December 2022.
No surprise then that this month’s rebound comes as the central bank has reversed course.
The Fed cut its benchmark interest rate last month for the first time since December 2024 and has signaled more reductions could be in store. Lower borrowing costs have already nudged mortgage rates down, improving affordability and encouraging cautious optimism among builders. That matters for the broader economy. Housing is often an early signal of shifts in monetary policy because changes in mortgage rates quickly affect demand for new homes.
“The 30-year fixed-rate mortgage fell from just above 6.5% at the start of September to 6.3% in early October,” said Robert Dietz, chief economist at NAHB. Builders, he added, expect a “slightly improving sales environment” as rates decline, even though labor shortages and construction costs remain hurdles.
The new report is also good news for investors in homebuilding stocks, a sector that’s been waiting for signs of relief. The SPDR S&P Homebuilders ETF ($1.9 billion in assets under management) has dropped 15% over the past year, lagging the S&P 500 by roughly 30 percentage points. Homebuilding shares tend to move ahead of demand, and optimism among builders could be an early sign of stabilization after a rough stretch.
Despite the October uptick, sentiment remains subdued. Only one in three builders describes conditions as favorable, and 38% report cutting prices—an indication that buyers are still sensitive to financing costs. The average discount rose to 6% in October, up from a 5% average in prior months. Incentives remain common, with nearly two-thirds of builders offering them to close deals, which helps explain why new homes have been selling for less than existing ones.
Buddy Hughes, NAHB’s chairman and a North Carolina builder, said recent rate declines are “an encouraging sign for affordability” but that “most home buyers are still on the sidelines, waiting for mortgage rates to move lower.”
That patience may soon pay off if the Fed keeps easing. Lower rates could bring more buyers back into the market, spurring new construction and jobs tied to housing. The October index doesn’t mark a recovery, but it hints at something that’s been missing for much of the past two years: momentum.
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