As mortgage rates have remained below 7% for several weeks, builder sentiment continues its growth, 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 seven points to 44 in January, continuing the trend from December when the reading grew three points.
“Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs,” said NAHB Chairman Alicia Huey. “Single-family starts are expected to grow in 2024, adding much needed inventory to the market. However, builders will face growing challenges with building material cost and availability, as well as lot supply.”
“Mortgage rates have decreased by more than 110 basis points since late October per Freddie Mac, lifting the future sales expectation component in the HMI into positive territory for the first time since August,” added NAHB Chief Economist Robert Dietz. “As home building expands in 2024, the market will see growing supply-side challenges in the form of higher prices and/or shortages of lumber, lots and labor.”
Despite positive signs, builders continue to offer incentives and discounts in order to combat economic challenges, as seen in December and other previous months:
- Thirty-one percent of builders reported cutting home prices, down from 36% during the previous two months and the lowest rate since last August.
- The average price reduction remained at 6%, unchanged from the previous month.
- Meanwhile, 62% of builders provided sales incentives of all forms, remaining stable between 60% and 62% since October.
All three of the major HMI indices posted gains in January. The HMI index charting current sales conditions increased seven points to 48, the component measuring sales expectations in the next six months jumped 12 points to 57, and the component gauging traffic of prospective buyers rose five points to 29.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased four points to 55, the South increased two points to 41, the West increased one point to 32 and the Midwest remained at 34.
“Homebuilders are clearly feeling more optimism on two fronts. The first is the prospect of lower mortgage rates through 2024. This will help bring more homebuyers back to the purchase market. On the other side, housing starts are not keeping pace with the demand, so the amount of homes available for sale will remain tight,” said Dr. Selma Hepp, chief economist from CoreLogic.
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