Homebuilders are feeling more confident about the housing market as a fall in mortgage rates bolsters expectations of stronger buyer demand.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose 4 points to 48 in February, marking the third consecutive month of rising sentiment and the highest level since August 2023. By Economists surveyed by Bloomberg expected a value of 46.
The continued enthusiasm reflects the strength of the new home market and the expectation that mortgage rates will continue to fall, leading to greater buying interest.
“Buyer traffic is improving as even small interest rate cuts will generate a disproportionately positive response from potential home buyers,” NAHB Chairwoman Alicia Huey, a custom home builder and developer based in Birmingham, Alabama, said in a news release.
“And while mortgage rates are still too high for many potential buyers, we expect many more buyers to enter the market as mortgage rates continue to fall this year due to pent-up demand.”
Mortgage rates have fallen since peaking at nearly 8% last year, and more builders are slashing home prices to boost sales. In February, 25% of developers said they had reduced property prices, down from 31% in January and 36% in the last two months of 2023.
Meanwhile, the proportion of developers offering some form of incentive fell to 58% in February, down from 62% in January and the lowest proportion since last August.