Declining mortgage rates helped end a four-month decline in builder confidence, and recent economic data signal improving housing conditions heading into 2024, according to a new survey from the National Association of Home Builders (NAHB).
Builder confidence in the market for newly built single-family homes rose three points to 37 in December, according to the NAHB/Wells Fargo Housing Market Index (HMI).
“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” said NAHB chairman Alicia Huey, a builder and developer from Birmingham.
“The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur home buyer demand in the coming months, with the HMI component measuring future sales expectations up six points in December,” added NAHB chief economist Robert Dietz.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The HMI index gauging traffic of prospective buyers in December rose three points 24, the component measuring sales expectations in the next six months increased six points to 45 and the component charting current sales condition held steady at 40.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 51, the Midwest fell one point to 34, the South dropped three points to 39 and the West posted a four-point decline to 31.
But with mortgage rates still running above 7 percent throughout November, per Freddie Mac data, many builders continued to reduce home prices to boost sales. In December, 36 percent of builders reported cutting home prices, tying the previous month’s high point for 2023. The average price reduction in December remained at 6 percent, unchanged from the previous month.
Meanwhile, 60 percent of builders provided sales incentives of all forms in December, the same as November but down slightly from October.
HMI tables can be found at nahb.org/hmi.
