After showing miniscule improvement last month, home builder confidence is back in the doldrums, with August’s Housing Market Index (HMI) reading of 32 tying its third-lowest mark since 2012.

The HMI measures builder sentiment on current single-family home sales and expectations for the next six months on a scale of 0 to 100. Based on a survey conducted by the National Association of Home Builders (NAHB) and Wells Fargo, any HMI result under 50 indicates a general lack of builder confidence.

The HMI has now been tipped toward the pessimistic side of the scale for 16 straight months. For NAHB Chief Economist Robert Dietz, the malady is housing unaffordability, and the antidote is a Federal Reserve rate cut.

“Housing affordability is central to the outlook for economic growth and inflation,” Dietz said in a press release. “Given a slowing housing market and other recent economic data, the Fed’s monetary policy committee should return to lowering the federal funds rate, which will reduce financing costs for housing construction and indirectly help mortgage interest rates.”

NAHB Chairman Buddy Hughes agreed that affordability is the “top challenge” for the housing market, with many prospective homebuyers waiting for lower mortgage rates before proceeding with a home purchase. He added that builders are “also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes.”

To help combat the affordability headwinds, 66% of builders used sales incentives in August, the HMI survey found. That’s up from 62% in July and represents the highest percentage of the post-pandemic era.

About 37% of builders reported cutting prices in August, down slightly from July’s 38% mark, with the average price reduction holding steady at 5%.

Regionally, builders in the Midwest are the most optimistic, posting an August HMI reading of 43. The HMI for the Northeast region clocked in at 39, followed by the South at 29 and the West at 26.