By many accounts, we are still in a seller’s market.

Home prices continue to rise in nearly all of the US even as mortgage rates climb ever higher. Inventory levels – typically used by housing economists to gauge whether the market is favoring buyers or sellers – place the country squarely in a seller’s market.

But even with a mere 3.3 months’ supply of housing – nearly less than half of what would be considered balanced – homebuilders are struggling to sell homes. Builder sentiment fell for the ninth straight month in September, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Monday.

While inventory levels are low, the shortage is most acutely felt at the lower end of the price spectrum. Starter homes or entry-level homes – the most in-demand segment – ​​are not being built at adequate levels.

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Construction of the new subdivision Monteluna, by Blanford Homes, is in progress in Mesa, Ariz., on Nov.  8, 2021.

Construction of the new subdivision Monteluna, by Blanford Homes, is in progress in Mesa, Ariz., on Nov. 8, 2021.

According to the US Census Bureau, the share of new homes sold priced under $300,000 was 38% in 2020, 23% in 2021, and only 11% in the first seven months of 2022.

Jerry Howard, President and CEO of the National Association of Home Builders, told USA TODAY that focusing on the lower end of the price segment doesn’t make financial sense for builders.

“Given the cost of building materials, given the cost of regulatory compliance, it’s very, very difficult to build a starter home and still make it pencil out for you no matter where you are in the country,” says Howard.

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Builder confidence in the market for newly built single-family homes fell three points in September to 46, the lowest level since May 2014 with the exception of the spring of 2020, according to the index.

“Right now, builders aren’t focused on any homes as best as I can tell we’ve slowed down completely,” says Howard.

Why is builder sentiment down?

Last week, mortgage rates exceeded 6% for the first time since late 2008 as the August inflation report turned out to be worse than expected.

The average rate for a 30-year fixed-rate mortgage increased to 6.02% for the week ending Sept. 15, according to Freddie Mac’s Primary Mortgage Market Survey. This time last year, the rate stood at 2.87%.

“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 National Association of Home Builders Chairman Jerry Konter, a homebuilder and developer from Savannah, Georgia.

Are homebuilders dropping their prices?

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

On average, builders have reduced their prices by 6%, according to the homebuilders association.

For the three-month moving averages for regional housing market index scores, the Northeast fell five points to 51, the Midwest dropped five points to 44, the South fell seven points to 56 and the West posted a 10-point decline to 4.

The regional differences have to do with the diversity of their own economies, and the policies that are in place at the state and local levels, says Howard.

Are we in a housing recession?

Broadly speaking, a housing recession means a decline in economic activity associated with the housing sector.

“There is no precise definition for it,” the homebuilders association Chief Economist Robert Dietz, told USA TODAY. “It’s a judgment call.”

But one of the leading indicators of a housing recession is a significant decline in single-family starts.

“2022 will see a decline, the first for a calendar year since 2011,” says Dietz. “The seasonally adjusted annual rate of single-family permits is now down 25% from its peak in February to the August reading.”

In July, newly constructed home sales were down nearly 30% from a year ago.

Existing home sales were also down 20% year over year in July. Builder confidence level is generally low.

“Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating,” says Dietz. “In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions.”

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What can policymakers do to boost the housing market?

Policymakers can help fix supply chain issues and negotiate a long-term stable deal with Canada on the importation of Canadian lumber, says Howard.

“Right now, we are in a real box in housing and only policymakers can get us out of it,” he said.

Builders are experiencing delays in receiving everything from concrete supplied by Mexico to transformers (whose component parts come from China) needed to generate electricity to cabinets, toilets and tiles.

“The delay adds to the cost, the delay frustrates the consumer,” says Howard. “We’ve been out of the COVID lockdown for almost two years now, and this is a hangover from it.”

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

This article originally appeared on USA TODAY: Amid a seller’s housing market, why has homebuilding stalled?