Homebuilder sentiment falls again, but bottom may be near

Homebuilders were less confident in their business in December, but are starting to see potential green shoots.

Builder confidence in the single-family home market fell 2 points to 31 in December in the National Association of Home Builders/Wells Fargo Housing Market Index. Any value below 50 is considered negative.

This is the twelfth consecutive month of declines and the lowest reading since mid-2012, with the exception of a very brief decline in early the covid pandemic. The index stood at 84 in December last year.

“The silver lining in this HMI report is that it is the smallest decline in the index in the last six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” said the NAHB chief economist. , Robert Dietz. “Mortgage rates have dropped from more than 7% in recent weeks to around 6.3% todayand for the first time since April, builders reported an increase in future sales expectations.”

Of the three index components, current sales conditions fell 3 points to 36, buyer traffic was flat at 20, but sales expectations over the next six months rose 4 points to 35.

Regionally, sentiment was strongest in the Northeast and weakest in the West, where prices are highest.

The NAHB continues to blame high mortgage rates, which despite the recent drop are still about double what they were a year ago. That has caused affordability to plummet.

“In this environment of high inflation and high mortgage rates, builders are struggling to keep homes affordable for buyers,” said NAHB President Jerry Konter, a builder and developer in Savannah, Georgia. “Our most recent survey shows that 62% of builders are using incentives to drive sales, including lowering mortgage rates, paying buyers points and offering price reductions.”

But Konter noted that with construction costs rising more than 30% since the beginning of this year, builders are still having a hard time cutting prices. About 35% of builders cut home prices in December, down from 36% in November. The average price reduction was 8%, down from 5% to 6% at the beginning of the year.

“NAHB expects the weaker housing conditions to persist into 2023, and we forecast a recovery in 2024, given the existing national housing deficit of 1.5 million units and the lower future mortgage rates anticipated with the easing of the Fed in 2024,” Dietz said. . .