Builder confidence rose 7 points in February, to 42, according to the latest NAHB Housing Market Index. It’s the highest score since September and the largest 1-month increase in a decade
The outlook for the housing market has improved for two-consecutive months, leaving builders cautiously optimistic as the spring homebuying season fast approaches, according to the latest Wells Fargo/National Association of Home Builders Housing Market Index, released Wednesday.
Builder confidence in the market for newly built single family homes rose seven points in February, to 42 — the highest score since September and the largest one-month increase in a decade , the new data shows.
“With the largest monthly increase for builder sentiment since June 2013, the HMI indicates that incremental gains for housing affordability have the ability to price-in buyers to the market,” NAHB Chairman Alicia Huey said in a statement.
“The nation continues to face a sizable housing shortage that can only be closed by building more affordable, attainable housing,” Huey added. “However, the two monthly gains for the HMI at the start of 2023 match the cautious optimism noted by the large number of builders at the recent International Builders’ Show in Las Vegas, who reported a better start to the year than expected last fall.”
Mortgage rates peaked at just above 7 percent in October, forcing builder sentiment into a trough as buyers retreated from the market. Rates declined to 6.1 percent at the beginning of February, but the 10-year Treasury rate has moved more than 30 basis points in the past two weeks, implying more rate hikes likely lay in store.
“While the HMI remains below the breakeven level of 50, the increase from 31 to 42 from December to February is a positive sign for the market,” NAHB Chief Economist Robert Dietz said in a statement. “Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle.”
Despite the volatility in mortgage rates, Dietz predicted that the building market would still be able to stabilize in the coming months.
“While we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024,” he said.
According to the NAHB’s February survey, 31 percent of homebuilders reduced home prices in February, down from 35 percent in December and 36 percent in November. The average price drop was 6 percent in February, down from 8 percent in December. Fifty-seven percent of builders offered some kind of concession to buyers, down from 62 percent in December.
The index is derived from a monthly survey of homebuilders that asks builders to rate perceptions of current single-family home sales and sales expectations as “good” “very good” or “poor” and buyer traffic as “high to very high,” “average” or “low to very low.”
All three categories posted gains during February, with the index gauging current sales conditions rising six points to 46, the sales expectations index increasing 11 points to 48 and the measure of buyer traffic increasing buyer traffic increasing six points to 29.