Builder confidence in the market for new homes posted its 12th-straight monthly decline in December, dropping 2 points to 31—down from 84 points one year ago and hitting the lowest lowest level since 2012, excluding a historic plunge at the start of the pandemic, according to the NAHB/Wells Fargo Housing Market Index released Monday.

The association called the ongoing collapse a byproduct of high inflation and high mortgage rates, which have made homes less affordable and deterred demand from prospective home buyers—forcing some 62% of builders to use incentives (such as price reductions and mortgage rate buy-downs) to bolster sales.

The worse-than-expected report also showed 35% of builders reduced prices by an average of 8% in December, up from 5% earlier in the year.

In a statement, NAHB chief economist Robert Dietz said he expects weaker housing conditions to persist next year before a recovery in 2024, as the Fed reverses its aggressive monetary policy of this year; however, he also outlined a “silver lining” in the report.

Dietz notes this month’s drop in the index marks the smallest decline in the past six months—a sign builder sentiment could soon start to fall—and for the first time since April, builders now expect future sales will actually increase, thanks in part to mortgage rates falling to 6.3% from a peak above 7% in recent weeks.

In emailed comments, Pantheon Macro senior economist Kieran Clancy agreed that the rise in expected sales signals home sales may soon stop falling, as quickly as the first quarter, but he cautioned a “meaningful recovery is still a long way off,” noting home prices have “much further to fall” as higher interest rates linger in the coming quarters.