By Shaina Mishkin

Home builders grew more optimistic in October. Investors haven't.

Industry sentiment measured by the National Association of Home Builders increased by five points in October to the highest level since April. The gain was fueled by a nine-point jump in expectations for future sales, the most since early 2024.

The reading didn't stop the slide in home builder stocks. The iShares U.S. Home Construction exchange-traded fund is down roughly 4.1% in October, on pace for its worst month since February, according to Dow Jones Market Data.

Despite the strong gain in future expectations, there wasn't a whole lot of good news about conditions for homebuying right now. The trade group's measures of current sales and traffic increased but remained at relatively low levels.

Investors in public builders are likely cautious for a number of reasons: the typically busy season for home buying this year was a wash, with many builders offering incentives and cutting prices to keep homes selling at the expense of their profit margins. Of builders surveyed in October, 38% said they cut prices, while 65% offered incentives.

Mortgage rates have retreated this autumn, with a weekly Freddie Mac gauge falling to a recent 6.27% from 6.5% in early September.

But buyers have largely remained hesitant. "Most home buyers are still on the sidelines, waiting for mortgage rates to move lower," Buddy Hughes, the trade group's chairman, said in a statement.

There's more weighing on buyers' minds than just costs, Bob Broeksmit, the president of the Mortgage Bankers Association, said in a Thursday statement. "Continued economic uncertainty, including the effects of the ongoing government shutdown, was likely behind the declines in purchase and refinance applications," he noted, referencing the group's mortgage applications data released earlier this week.

Buyer reluctance, in turn, has weighed on the stocks. Evercore last week downgraded a number of builders in part on signs of consumer hesitance even as costs have come down.

In the absence of census data measuring housing starts and permits -- the Friday scheduled release will likely be delayed because of the government shutdown -- the next potential catalyst for the group will come with PulteGroup's earnings on Oct. 21. D.R. Horton earnings will come the following week, on Oct. 28.

Signs of margin stabilization could help the group, UBS analyst John Lovallo wrote in a note earlier this week. Builders could report fewer orders and more conservative outlooks than expected, he noted. "However, these factors could be overshadowed by in-line/slightly better than expected gross margins and the nearing of both a demand and negative earnings revision cycle bottom."

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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October 16, 2025 12:00 ET (16:00 GMT)

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