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Homebuilder sentiment hit the lowest level since December in August as high interest rates and record home prices continue to curb buyer appetite for new homes.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 39 in August, down two points from July’s revised figure of 41. Economists polled by Bloomberg were anticipating a reading of 43.

Any number under 50 indicates that more builders view conditions as poor than good.

“Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness,” NAHB chairman Carl Harris, a custom home builder from Wichita, Kan, wrote in a statement.

The drop in builder confidence comes as mortgage rates have fallen to their lowest level in over a year. The average rate on the 30-year fixed-rate mortgage dropped to 6.47% from 6.73% last week, Freddie Mac reported last Thursday. New data will be out at noon today.

However, the NAHB reported that about three-quarters of the responses for the August survey were collected during the first week of the month when mortgage rates were hovering above 6.7%.

As a result, builders cut home prices to boost sales in August, with 33% of builders reporting slashing home prices, the highest share so far this year, and up from 31% in July. Meanwhile, the use of sales incentives increased to 64% in August from a reading of 61% in July, marking the highest level since April 2019.

“With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,” NAHB chief economist Robert Dietz, wrote in the press release.