The National Association of Home Builders/Wells Fargo index of builder sentiment is now 55, down from a revised 57 in September that was weaker than initially estimated. Readings above 50 mean more builders view conditions as good than poor.
The figures show a partial closing of the federal government that began Oct. 1 and a political showdown over raising the nations $16.7 trillion borrowing limit are taking a toll on sentiment and delaying spending decisions. Mortgage rates close to a two-year high are also slowing gains in real estate, which has been a source of strength for the economy.
A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nations debt limit have caused builders and consumers to take a pause, David Crowe, chief economist at the builders association, said in a statement. Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.
Estimates in a Bloomberg survey of 48 economists for the homebuilder index ranged from 54 to 60 after a previously reported September reading of 58.
All three components of the builder survey deteriorated in October. The groups measure of the sales outlook for the next six months fell to a four-month low of 62 from 64 in September.
Prospective buyer traffic also reached the lowest level since June, falling to 44 this month from 46. The gauge of current single-family home sales decreased to 58 from 60.
Builder confidence weakened in three of the four U.S. regions, with companies in the Northeast, which includes the Washington area, showing the greatest deterioration. The index for the region declined to 31, the lowest level since April. Optimism also wavered in the South and West.