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The sentiment in the single-family housing market posted an unexpected gain in January, rising for the first time in 12 straight months. This is a significant change, as economists had predicted a slight decline. According to the National Association of Home Builders/Wells Fargo Housing Market Index, sentiment rose 4 points to 35, a welcome change as anything below 50 is still considered negative sentiment. To put this into perspective, the metric stood at 83 in January 2022.
The Chairman of the NAHB, Jerry Konter, a homebuilder from Savannah, Georgia, commented on the unexpected rise in sentiment. He said, “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. The rise in builder sentiment also means that cycle lows for permits and starts are likely near. A rebound for home building could be underway later in 2023.”
The recent increase in sentiment could be attributed to the drop in mortgage rates, which has improved affordability for both builders and consumers. According to Mortgage News Daily, the average contract interest rate on the 30-year fixed mortgage peaked at 7.37% at the end of October. However, it fell throughout December and stood at 6.17% as of Tuesday.
The Chief Economist of NAHB, Robert Dietz, also weighed in on the new data. He said, “While NAHB is forecasting a decline for single-family starts this year compared to 2022, it appears a turning point for housing lies ahead. In the coming quarters, single-family home building will rise from cycle lows as mortgage rates are expected to trend lower and boost housing affordability.”
This is an exciting development, as the nation still has a structural housing deficit of 1.5 million units, and improved affordability should increase demand. However, it’s worth noting that while a measure of mortgage applications to purchase a home did rise sharply last week, according to the Mortgage Bankers Association, the number of new listings on the market is still down from a year ago.
Overall, the unexpected rise in builder sentiment in the single-family housing market is a positive sign for the industry. The drop in mortgage rates, coupled with the prediction of a rebound in home building, suggests that the market may be on the verge of recovery. However, it’s essential to remember that the nation still has a structural housing deficit, and the need for new listings on the market could impede progress.
