- America’s home builders are becoming increasingly optimistic about the housing market.
- The National Association of Home Builders/Wells Fargo Housing Market Index rose month-on-month by the highest amount in 10 years.
America’s homebuilders are becoming more optimistic as buyer demand picks up, partly due to slightly lower mortgage rates.
Builder confidence in the newbuild single-family home market rose seven points to 42 in February, according to the National Association of Home Builders/Wells Fargo Housing Market Index. This is the highest reading since September and the biggest monthly gain since June 2013.
Anything below 50 is considered negative, but sentiment had fallen to 31 in December. The index was at 81 in February last year before mortgage rates started to rise.
Builders say affordability is improving as mortgage rates fall back from their highs last fall and begin to settle in a narrow range. The average interest rate on the popular 30-year fixed-rate mortgage peaked at 7.37% last October, according to Mortgage News Daily, but spent much of January in the low 6% range. Rates have edged up to the mid-range of 6% over the past two weeks.
“With the largest monthly increase in homebuilder sentiment since June 2013, the HMI shows that incremental gains in housing affordability can price buyers into the market,” said NAHB Chair Alicia Huey, a homebuilder and developer from Birmingham, Alabama. “The nation continues to face a significant housing shortage that can only be filled by building more affordable and accessible housing.”
A construction worker works on a home as a subdivision of homes is built in San Marcos, California January 31, 2023.
Mike Blake | Portal
Huey called it “cautious optimism,” adding that affordable housing is still difficult to build given higher labor and material costs.
Of the three components of the NAHB index, current selling conditions rose six points to 46 in February. Selling expectations in the next six months rose 11 points to 48 and buyer traffic rose six points to 29.
Homebuilders have had strong incentives to offset higher mortgage rates, but they appear to be withdrawing them when interest rates calm down.
NAHB reports that 31% of homebuilders cut home prices in February, up from 35% in December and 36% in November. The average price decline in February was 6%, compared to 8% in December and tied with 6% in November. The proportion of builders offering some type of incentive, such as B. a mortgage interest buyback, fell to 57% in February, compared to 62% in December and 59% in November.
“Even as the Federal Reserve continues to tighten monetary conditions, forecasts suggest the housing market has exceeded peak mortgage rates for this cycle,” said NAHB Chief Economist Robert Dietz. “And while we expect continued volatility in mortgage rates and housing costs, the construction market should be able to stabilize over the coming months, followed by a recovery back to trend levels for housing later in 2023 and early 2024.”
Looking at the three-month moving averages, sentiment in the Northeast rose regionally by 4 points to 37. In the Midwest it rose one point to 33 and in the South to 40 points. In the west, where housing is the least affordable, it rose three points to 30.