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Confidence among U.S. single-family home builders fell for the ninth straight month in September as soaring mortgage rates and persistently high prices for building materials made new housing less affordable for many first-time buyers.

The National Association of Home Builders/Wells Fargo Housing Market index dropped three points to 46 this month. Discounting the plunge during the spring of 2020 when the economy was reeling from the first wave of COVID-19, this was the lowest reading since May 2014. A reading below 50 indicates that more builders view conditions as poor rather than good.

Economists polled by Reuters had forecast the index at 47.

The Federal Reserve’s aggressive monetary policy tightening has had a significant impact on the housing market, compared to the labour market and consumer spending, where demand remains fairly strong.

The U.S. central bank is expected to raise its policy rate by 75 basis points on Wednesday for the third time since June. Since March, the Fed has lifted that rate from near zero to its current range of 2.25 per cent to 2.50 per cent.

Mortgage rates have surged even higher. The 30-year fixed mortgage rate averaged 6.02 per cent last week from 5.89 per cent in the prior week, breaking above 6 per cent for the first time since November 2008, according to data from mortgage finance agency Freddie Mac.

“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said NAHB Chairman Jerry Konter.

“In another indicator of a weakening market, 24 per cent of builders reported reducing home prices, up from 19 per cent last month.”

The NAHB also noted that endless disruptions in the supply chain for building materials continued to take a toll, adding that “more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buy-downs, free amenities and price reductions.”

The survey’s measure of current sales conditions slipped three points to 54. Its gauge of sales expectations over the next six months dipped one point to 46. The component measuring traffic of prospective buyers fell one point to 31.

Data from the Commerce Department on Tuesday is expected to show housing starts little changed in August as rising rents boost the construction of multi-family housing units, offsetting the drag from the single-family housing segment.

According to a Reuters survey, housing starts likely slipped to a seasonally adjusted annual rate of 1.445 million units last month from a pace of 1.446 million units in July.

Permits for future home construction are, however, expected to have declined to a rate of 1.610 million units from a pace of 1.685 million units in July.

“It looks clear that higher rates have been weighing on the housing market, and we continue to see weak trends across many of the related recent reports,” said Daniel Silver, an economist at JPMorgan in New York.

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