A recent surge in falling mortgage rates has put a stop to a four-month slide in builder confidence, sparking new construction on single-family housing across the United States. Economic indicators also suggest an upturn in housing conditions as we approach 2024.
According to the Wells Fargo Housing Market Index (HMI), published by the National Association of Home Builders (NAHB), builder confidence in single-family homes increased by three points in December. The total builder confidence now stands at 37, a rise attributed to the falling mortgage rates which have bolstered both consumer and builder faith in the new housing development market. The HMI measures builder perceptions of current single-family home sales for the upcoming six months, categorizing them as good, fair, or poor. This survey has been conducted for over 35 years to gauge market response to various influences, with mortgage rate being a key factor.
The survey also prompts builders to assess how often potential buyers are contacting them about new housing development projects. When the index surpasses 50, it signifies that most builders perceive conditions as improving rather than deteriorating. Regionally, the Northeast leads with a score of 51, followed by the South at 39, Midwest at 34, and the West at 31. The West experienced the steepest decline with a drop of four points. Conversely, the Northeast was the only region that saw an increase during December and is currently 12 points ahead of any other region.
"The housing market appears to have passed peak mortgage rates for this cycle," says NAHB Chief Economist Robert Dietz. "This should help spur home buyer demand in the coming months." He adds that "the HMI component measuring future sales expectations rose six points in December." Dietz further states that "our statistical analysis indicates that temporary and outsized differences between builder sentiment and starts occur after short-term interest rates rise dramatically, increasing the cost of land development and builder loans used by private builders."
