Homebuilder sentiment finally picks up as mortgage rates fall

After a year of declines, homebuilder sentiment started 2023 with a modest rebound, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report, released Wednesday. It suggests that homebuilder sentiment has bottomed out and (slightly) better days are ahead for homebuilders.

In January, builder confidence in the new-build single-family home market rose four points from december readingto an index value of 35.

The NAHB/HMI report is based on a monthly survey of NAHB members, in which respondents are asked to rate both current market conditions for new home sales and expected conditions for the next six months, as well as the traffic of potential buyers of new homes. houses Scores for each component of the Home Builder Confidence survey are then used to calculate an index, with any number greater than 50 indicating that more home builders view conditions as favorable than not.

The NAHB attributes the increase to the slight decrease in mortgage rates at the end of last year.

“The rise in builder sentiment also means cycle lows for permissions and start they are likely close, and a homebuilding rebound could be underway later in 2023,” Jerry Konter, NAHB president, said in a statement.

The chief economist of the trade organization is also optimistic.

“While the NAHB forecasts a decline for single-family home starts this year compared to 2022, an inflection point appears to be looming for housing,” said Robert Dietz, chief economist for the trade group, in a statement. “Over the coming quarters, single-family home construction will exceed cycle lows as mortgage rates are expected to trend lower and housing affordability increase. Improving housing affordability will increase demand for housing, as the nation faces a structural housing deficit of 1.5 million units.”

Three other indices tracked by the NAHB also posted gains in January. The indicator that measures current sales conditions rose to 40, up four points month-over-month. The component that tracks sales expectations for the next six months rose two points to a reading of 37 and the index that tracks potential buyer traffic was up three points from December to a reading of 23.

Regionally, the three-month moving averages for HMI scores returned mixed results, with the West gaining one point to a reading of 27, the South holding steady at 36, and the Northeast and Midwest falling modestly to 33 and 32. , respectively.

Another poll, the BTIG/HomeSphere State of the Industry Report, also reported a leveling off in the outlook for homebuilders. According to the survey, 71% of builders saw a year-over-year decline in sales last month, the same as in November. Despite a 70% year-over-year decline in traffic, the builder reported a slight improvement in performance relative to expectations: 11% of respondents reported that sales were better than expected and 35% reported that sales were better than expected. sales were worse than expected. These metrics are improved from 10% and 50%, respectively, in November.

“Conditions remain very sluggish given higher mortgage rates, fears of falling home values ​​and weak consumer confidence,” BTIG analyst Carl Reichardt said in a statement.

The BTIG/HomeSphere Study is a survey of approximately 50-100 small to medium-sized homebuilders selling, on average, 50-100 homes per year across the country. In December the survey had 91 respondents.

Despite the more positive outlook, homebuilders are still cutting prices and using incentives to sell homes, with 29% of respondents reporting lowering some, most, or all base prices and 41% reporting using incentives.

“It appears the nadir for builder confidence this cycle was in December, even as many builders continue to use a variety of incentives, including price reductions, to boost sales,” Konter said.

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