As mortgage rates continue to put pressure on the housing market, homebuilder confidence rose in December, according to new data from the National Association of Home Builders (NAHB).
The NAHB/Wells Fargo Housing Market Index (HMI) found that builder confidence grew three points to 37 in December, following a six point drop in November when readings hit the lowest level since the start of the year.
“The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur homebuyer demand in the coming months, with the HMI component measuring future sales expectations up six points in December,” said NAHB Chief Economist Robert Dietz.
Builders continue to offer incentives and discounts in order to combat economic challenges, as seen in November and other previous months:
- In December, 36% of builders reported cutting home prices, tying November’s high point for 2023.
- The average price reduction remained at 6%, unchanged from the previous month.
- Meanwhile, 60% of builders provided sales incentives of all forms, the same as November, but down slightly from 62% in October.
In addition, two of the three major HMI indices posted increases in December. The HMI index gauging traffic of prospective buyers in December rose three points to 24, the component measuring sales expectations in the next six months increased six points to 45 and the component charting current sales condition held steady at 40.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 51, the Midwest fell one point to 34, the South dropped three points to 39 and the West posted a four-point decline to 31.
“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” said NAHB Chairman Alicia Huey. “With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory and lower inflation.”
Dietz added that the recent pessimism in builder confidence this fall has been somewhat counter to gains for the pace of single-family permits and starts during this timeframe.
“Our statistical analysis indicates that temporary and outsized differences between builder sentiment and starts occur after short-term interest rates rise dramatically, increasing the cost of land development and builder loans used by private builders,” he noted. “In turn, higher financing costs for home builders and land developers add another headwind for housing supply in a market low on resale inventory. While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market. Looking forward, as rates moderate, this temporary difference between sentiment and construction activity will decline.”
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