U.S. homebuilders are growing optimistic as buyer demand grows, thanks in part to slightly lower mortgage rates.
Homebuilder confidence in the market for newly built single-family homes in February rose 7 points to 42, according to the National Association of Home Builders/Wells Fargo Housing Market Index. This is the highest reading since September and the largest monthly gain since June 2013.
Anything below 50 is considered negative, but sentiment had fallen to 31 in December. The index stood 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 of last fall and begin to stabilize in a narrow range. The average rate on the popular 30-year fixed-rate mortgage had peaked at 7.37% last October, according to Mortgage News Daily, but spent much of January in the low 6% range. Rates have increased slightly over the past two weeks to be in the mid-6% range.
“With the largest monthly increase in builder sentiment since June 2013, the IHM indicates that further gains in housing affordability have the ability to draw buyers back into the market,” said Alicia Huey, president of NAHB, a builder and developer of Birmingham, Alabama. “The nation continues to face a significant housing shortage that can only be solved by building more affordable and accessible housing.”
A construction worker works on top of a house as a housing development is built in San Marcos, California, January 31, 2023.
Mike Blake | Reuters
Huey called it “cautious optimism,” adding that affordable housing is still difficult to build, given higher labor and material costs.
Across the three components of the NAHB index, current selling conditions in February rose 6 points to 46. Expectations to sell over the next six months rose 11 points to 48 and buyer traffic climbed 6 points. 6 points to 29.
Builders used strong incentives to offset higher mortgage rates, but they appear to be withdrawing them as rates stabilize.
NAHB reports that 31% of builders cut home prices in February, compared to 35% in December and 36% in November. The average price drop in February was 6%, down from 8% in December, and tied with 6% in November. The share of builders offering any type of incentive, such as a mortgage rate buyout, fell to 57% in February from 62% in December and 59% in November.
“Even if the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has moved past the highest 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 achieve stability in the coming months, followed by a rebound towards construction levels. of trending homes later in 2023 and early 2024.”
Regionally, looking at three-month moving averages, sentiment in the Northeast rose 4 points to 37. In the Midwest it rose 1 point to 33, and in the South rose 4 points. to 40. In the West, where housing is least affordable, it rose 3 points to 30.
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