U.S. home-builder confidence has taken a hit for the third month running, largely due to the mounting pressure of rising mortgage rates. This trend is negatively impacting the housing market, as revealed by the most recent data from the National Association of Home Builders (NAHB) on Tuesday.

Key takeaways from the October data include:

– The NAHB, in partnership with Wells Fargo, uses a housing-market index to gauge builder confidence. In October, the index dipped to 40, down from 44 in September. This decline indicates mortgage rates exceeding 7%, a result of the Federal Reserve’s aggressive monetary policy, which is further eroding builder confidence.

– The drop in confidence was unexpected. Prior to the release of the official data, economists had forecasted the index to remain steady at 44, according to a Wall Street Journal survey.

– The data also highlighted a worrying trend. In October, 32% of builders reported a decrease in home prices, mirroring last month’s figures. This is the highest rate since December 2022. Additionally, the use of sales incentives has risen, with 62% of builders offering various promotions this month, up from 59% in September.

– Buyer demand, a crucial element of the housing market, is on the decline. Many potential homeowners, particularly younger generations, are being priced out of the market due to skyrocketing interest rates, according to NAHB Chair Alicia Huey. She further explained the far-reaching effects of these high rates, saying, “These rates not only deter potential buyers but also increase the costs and availability of builder development and construction loans. This double blow impacts supply while simultaneously reducing housing affordability.”

– An examination of the individual components of the housing market index shows a universal decrease in October. The index for current sales conditions fell four points to 46. Expected sales for the next six months saw a more significant drop, falling five points to 44. Most alarming, however, is the measure of potential buyer traffic, which fell four points to just 26.

The U.S. housing market is facing a series of obstacles as builders contend with falling confidence levels. The ongoing trend of high mortgage rates, influenced by wider economic policies, is reshaping the housing market in unforeseen ways, requiring industry players to be adaptable and resilient.

Read more at Barron’s.