Is This a Positive Sign for the Housing Market?

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nahb builder confidence increases in january

It’s a small uptrend, but an uptrend it is.

According to the National Association of Home Builders/Wells Fargo monthly housing market index, homebuilder confidence in the new-build single-family home market rose 4 points to 35 in January.

The surge ends the last 12 consecutive months of the fall in homebuilder confidence in 2022.

Increasing confidence in the housing market

NAHB leaders believe the uptrend could be an encouraging sign that a turning point is imminent for the housing market. Not immediately, but on the horizon and supported by the slight drop in interest rates.

Nevertheless, builders are struggling with three main challenges:

  • Increased construction costs
  • Disruptions in the supply chain of building materials
  • Difficult affordability conditions.

“It appears that the bottom for homebuilder sentiment this cycle was registered in December, although many homebuilders continue to use a variety of incentives, including rebates, to boost sales,” said NAHB Chairman Jerry Konter, a homebuilder and Developers from Savannah, Ga. “The surge in builder sentiment also means that cycle lows for permits and housing starts are likely near and a residential construction recovery could be underway later in 2023.”

Continued decrease in mortgage rates will help

NAHB chief economist Robert Dietz said mortgage rates are expected to “fall” which will help make new housing more affordable.

“While the NAHB is forecasting a decline in single-family homes this year compared to 2022, a tipping point for housing appears to be imminent,” said NAHB chief economist Robert Dietz. “In the coming quarters, single-family home construction is set to rise from cycle lows as mortgage rates are expected to trend downward and housing affordability to increase.

And Dietz pointed out that the US “struggles with a structural housing deficit of 1.5 million units”. As mortgage rates fall, demand for new homes should be strong.

Statistics from the housing market index

The 35% NAHB/Wells Fargo Housing Market Index for January is an average of three component survey members. Here’s how the components broke down:

  • Confidence among builders when selling new single-family homes is currently 40%
  • Builder confidence in new single-family home sales over the next 6 months, 37%
  • Confidence of the builder in the dealings of interested parties/clients, 23%.

While January’s 35% rating represents an overall uptrend, there is still a long way to go to the highest builder trust rating of 2022, which was 83% in January.

The regional averages using the same three components were:

  • Northeast 34%
  • Midwest 32%
  • south 39%
  • West 29%

How the housing market index is calculated

Derived from a monthly survey NAHB has conducted for more than 35 years, the NAHB/Wells Fargo HMI rates homebuilders’ perceptions of current single-family home sales and sales expectations over the next six months as “good”, “fair” or “Poor.” The survey also asks builders to rate potential buyers’ traffic as “high to very high,” “average,” or “low to very low.” The ratings for each component are then used to create a seasonally adjusted index calculated where any number above 50 indicates that more builders view conditions as good than bad.

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