Homebuilders aren't helping to lower home prices because they too are sitting on the sidelines waiting for inflation and mortgage rates to fall

• Like prospective homeowners, homebuilders aren't happy with the housing market, either.
• Builder sentiment fell for a 10th straight month in October to decade lows, barring the 2020 lockdowns.

Homebuilders. They're just like you.

Soaring costs are not only keeping potential homebuyers out of the real estate market, they're also pushing homebuilders to the sidelines despite an ongoing housing supply shortage.

The housing market isn't working for most Americans. Mortgage rates are the highest they've been since the mid-2000s housing bubble, making homes unaffordable for many of the buyers who've already delayed their home searches throughout the pandemic. Sales have slowed, homeowners are staying put, and prices are still near record highs.

As more buyers put their homeownership dreams on pause, builders are putting their construction efforts on hold as well. In September, residential homebuilding slowed as housing starts decreased 8.1% from August levels, according to a report from the US Census Bureau that was released on Wednesday.

During the month, single-family housing starts decreased 4.7% to a seasonally adjusted annualized rate of 892,000. September was the fourth month in 2022 to experience a downturn in home construction. The slowdown is attributed to the Fed's interest rate hikes that have reduced affordability for many would-be buyers.

"This will be the first year since 2011 to see a decline for single-family starts," Robert Dietz, the chief economist for the National Association of Homebuilders, said. "Given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues."

There's little hope for a quick change of mind. Homebuilder confidence sank for a 10th consecutive month in October, according to the National Association of Home Builders and Wells Fargo, weighed down by crashing demand and material bottlenecks. The firms' sentiment index is now half the level it boasted just six months ago, and marks the weakest sentiment in more than a decade aside from a colossal drop seen at the start of the pandemic.

Builders' crushed optimism and buyers' fading demand leave the market in an uncomfortable spot. Prices only just started to fall in July, bringing some relief after more than a year of record-breaking increases. Yet the Fed has signaled that it's nowhere near done with its rate hikes, all but guaranteeing mortgage rates will continue to climb through 2023.

That could be bad news for many prospective buyers. Data from Freddie Mac shows that in most cases, borrowers are now facing rates that have nearly doubled since 2021. As rates are projected to continue rising, more buyers are likely to be priced out of the market.

That may doom builders to another year of weak demand. Without government intervention or a sharper-than-expected drop in prices, there's little incentive for home construction to rebound.

"This situation is unhealthy and unsustainable," Jerry Konter, chairman of the NAHB, said. "Policymakers must address this worsening housing affordability crisis."