U.S. homebuilder sentiment rose more than expected this month, although market activity remains tepid as evidenced by an increase in the level of price reductions.

Also of note, in the absence of official housing construction data due to the federal government shutdown, the NAHB provided its own estimate.

Based on modeling of historical data, the October increase for the HMI suggests an approximate 3 percent increase for the September single-family permit data on a seasonally adjusted annual rate basis, it said. Our model suggests a 2 percent to 4 percent range for the increase based on the statistical relationship.

Builder confidence in the market for newly built single-family homes was 37 in October, improving from 32 in September. Nevertheless, the report cautions that the market remains challenging.

The housing market has some areas with firm demand, including smaller builders shifting to remodeling and ongoing solid conditions for the luxury market, it said. However, most home buyers are still on the sidelines, waiting for mortgage rates to move lower.

Thirty-eight percent of builders surveyed said they slashed prices in October. This compares with 39 percent in September and 37 percent in August.

The average price reduction was 6 percent in October, an uptick after averaging five percent for every month since November 2024. The use of sales incentives was 65 percent, unchanged from September.

Builder sentiment is not expected to recover, seen at 33 from 32 in September.

The housing market index is a monthly composite that tracks home builder assessments of present and future sales as well as buyer traffic. The index is a weighted average of separate diffusion indexes: present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers of new homes.

This report provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the housing market index, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Whether the housing market index reflects new home sales or home resales, once a home is sold, it generates revenues for the realtor and the builder. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic"ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.