A modest drop in mortgage rates over the past month has helped home builder confidence improve in January, after 12 consecutive months of falling, according to a survey released Wednesday.
Experts say that could mean new home building is set for a pivot as construction prospects improve. And that’s good news for home buyers who have been facing a low inventory amid a national shortfall in building for decades.
The National Association of Home Builders/Wells Fargo Housing Market Index is meant to gauge market conditions and looks at current sales, buyer traffic and the outlook for sales of new construction homes over the next six months.
All three metrics rose in January, marking the first improvement in builder sentiment since December 2021.
Although builders continue to grapple with elevated construction costs, building material supply chain disruptions and challenging affordability conditions, the rise in the index suggests the worst may have passed, said Jerry Konter, NAHB Chairman.
The survey found home builders’ confidence rose this month from its December level, which was the lowest sentiment level since 2012 — aside from the immediate onset of the pandemic.
“It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” Konter said. “The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.”
Even as mortgage rates surged for much of 2022, crushing the demand for homes, inventory of homes to buy has not swelled. Few existing homes are available as homeowners dig in to their current homes holding on to the ultra-low interest rates they secured over the past few years.
Building in 2023 is still expected to be lower than last year, said Robert Dietz, NAHB chief economist, but January could be a turning point.
“In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability,” he said. “Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units.”
Mortgage rates for a 30-year fixed-rate loan are now 6.33%, according to Freddie Mac. That is nearly double the rate a year ago, but down from the 2022 high of 7.08% reached in October and November.