Home builder confidence is growing inspired by falling interest rates, a new report from the National Association of Home Builders (NAHB) revealed today.
The NAHB/Wells Fargo Housing Market Index (HMI) indicated that as mortgage rates dropped below 7% in January, builder confidence in the market for single-family homes climbed seven points to 44. This marks the second consecutive monthly increase in builder confidence. A year ago, the index was at 35. In July 2023, it hit 56. In January 2022, the index stood at 83.
"Homebuilders are clearly feeling more optimism on two fronts,” CoreLogic Chief Economist Selma Hepp said in a statement. “The first is the prospect of lower mortgage rates through 2024. This will help bring more home buyers 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.”
NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., expects single-family starts to grow in 2024, adding much-needed inventory to the market. “However,” Huey said, “builders will face growing challenges with building material cost and availability, as well as lot supply.”
Many builders have continued to reduce home prices to boost sales, even as mortgage rates have fallen below 7% over the past month. In January, 31% 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 in January remained at 6%, unchanged from December.
“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,” NAHB Chief Economist Robert Dietz pointed out. “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.”
Meanwhile, the number of builders providing sales incentives has mainly remained unchanged since October, hovering between 60% and 62%.
The NAHB/Wells Fargo HMI shows more builders have good perceptions of current single-family home sales and sales expectations for the next six months.
