Homes under construction in Tucson, Arizona, U.S., on Tuesday, Feb. 22, 2022. Sales of new U.S. homes retreated in January after a flurry of purchases at the end of 2021, indicating a jump in mortgage rates may be starting to restrain demand.
Rebecca Noble | Bloomberg | Getty Images
Builder sentiment in the single-family housing market posted an unexpected gain 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 below 50 is still considered negative sentiment. The metric stood at 83 in January 2022.
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“It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” said Jerry Konter, NAHB chairman and a homebuilder from Savannah, Georgia. “The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.”
All three of the index’s components posted gains in January: current sales conditions rose 4 points to 40, sales expectations in the next six months increased 2 points to 37, and buyer traffic rose 3 points to 23.
Both builders and consumers are likely responding to the recent drop in mortgage rates. The average contract interest rate on the 30-year fixed mortgage last peaked at 7.37% at the end of October, according to Mortgage News Daily. It then fell throughout December and stood at 6.17% as of Tuesday.
“While NAHB is forecasting a decline for single-family starts this year compared to 2022, it appears a turning point for housing lies ahead,” said Robert Dietz, NAHB’s chief economist. “In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability.”
Dietz noted the nation still has a structural housing deficit of 1.5 million units and said improved affordability should increase demand.
A measure of mortgage applications to purchase a home did rise sharply last week, according to the Mortgage Bankers Association. Unfortunately, the number of new listings on the market is down from a year ago.