Government Shutdown Shakes U.S. Builder Confidence

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Builder confidence for single-family homes dropped to the lowest level in four months, as the turmoil in Washington brought a new level of uncertainty to the market.

The National Association of Home Builders' index of builder sentiment fell two points in October to 55, off a downwardly revised reading of 57 for the previous month.

"A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation's debt limit have caused builders and consumers to take pause," NAHB chief economist David Crowe said in the report. "However, interest rates remain near historic lows and we don't expect the level of rates to have a major impact on sales and starts going forward."

Optimism among builders remains higher than the 50 benchmark level and the market is still reporting pent-up demand in many U.S. markets, NAHB reports. The dip is partially a result of continued challenges in the market, including cost and availability of labor and a shortage of lots. 

All three of the HMI components, measuring current sales, sales expectations and prospective buyers, fell two point each, NAHB reports. 

Regionally, the confidence in the South was unchanged, while the West dropped one point and the Northeast fell three points. The Midwest reported the only increase, going up one point. 

NAHB estimates the pace of housing starts could reach 900,000 units in September, noting official numbers form the U.S. Census Bureau have not been released due to the government shutdown. 

"The NAHB estimate of 875,000 to 900,000 total housing starts is based on continuing improvement in single-family starts and ongoing volatility in multifamily construction," Mr. Crowe said.