Confidence among U.S. homebuilders this month slumped to a 14-year low as mortgage rates above 7%, labor shortages and elevated supply costs batter the housing market.

The National Association of Home Builders/Wells Fargo gauge of housing market conditions fell 3 points to 29, the lowest since June 2012. The median estimate in a Bloomberg survey of economists was 31.

A reading below 50 indicates more builders see conditions as poor than good. The index has stayed below that level for more than two years.

A measure of current sales dropped to 33, also a 14-year low. A gauge of expected sales over the next six months, one of the index’s core inputs, declined to the weakest level since November 2022. The prospective buyer traffic index slid to the lowest since the onset of the pandemic.

The gloomy outlook reflects a deteriorating market for homebuilders, as rising borrowing costs suppress buyer demand and new-home inventory remains elevated. The dual pressures have forced builders to offer discounts and expand incentives to lure customers, squeezing operating margins.

“Housing remains squeezed by supply-side constraints and significant affordability challenges,” Robert Dietz, NAHB chief economist, said in a statement Monday. “Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines.”

The share of builders that reported cutting prices climbed to 43%. About two-thirds reported using incentives this month, according to the NAHB survey.

Investors remain pessimistic about the sector. The iShares U.S. Home Construction ETF, which includes homebuilders and materials companies, has steadily declined over the past three months.

The NAHB report showed builder confidence in the South was the weakest since mid-2012, while sentiment in the West slumped 10 points to the lowest since the end of 2011. Builder confidence also slipped in the Midwest but rose in the Northeast.

The federal government will provide a glimpse into housing starts and building permits on Tuesday, while the National Association of Realtors will release pending-home sales for last month.

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