Builder sentiment in the single-family home market rose unexpectedly in January, rising for the first time in 12 straight months. Economists had predicted a slight decline.
Sentiment rose 4 points to 35 on the National Association of Home Builders/Wells Fargo housing market index. Anything under 50 is still considered negative vibes. The metric was 83 in January 2022.
“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 price cuts, to boost sales,” said Jerry Konter, NAHB chairman and homebuilder savannah Georgia. “The surge in builder sentiment also means that cycle lows for permits and housing starts are likely near and a recovery in housing construction could kick in later in 2023.”
Homes under construction in Tucson, Arizona, U.S., on Tuesday, February 22, 2022. US new home sales fell in January after a spate of buying in late 2021, suggesting that a rise in mortgage rates is beginning to dampen demand could .
Rebecca Edel | Bloomberg | Getty Images
All three components of the index posted gains in January: current selling conditions rose 4 points to 40, selling expectations in the next six months rose 2 points to 37 and buyer traffic rose 3 points to 23.
Both homebuilders and consumers are likely to react to the recent drop in mortgage rates. According to Mortgage News Daily, the average contract rate on the 30-year fixed-rate mortgage last hit 7.37% at the end of October. It then fell in December and stood at 6.17% on Tuesday.
“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 Robert Dietz, NAHB’s chief economist. “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.”
Dietz noted that the nation still has a structural housing deficit of 1.5 million units and that improved affordability should increase demand.
According to the Mortgage Bankers Association, the number of mortgage applications to buy a home has increased sharply in the past week. Unfortunately, the number of new registrations on the market has fallen compared to the previous year.