Builder confidence surged in January as falling mortgage rates drew in home buyers from the sidelines. The National Association of Home Builders’ monthly confidence index rose by 8 points to 44, exceeding economists’ expectations of a rise to 39. This marks the second consecutive month of increased confidence.
Strong Housing Market despite Lower Rates
Despite the lower rates, many builders are still cutting prices to attract buyers and boost sales. In December, 36% of builders were cutting prices, but that number has fallen to 31% in January. On average, price cuts amounted to 6%. Additionally, 62% of builders are using incentives other than price cuts to improve sales.
Positive Outlook for Builders
The three gauges that contribute to the overall builder-confidence index all saw increases. Builders were particularly upbeat about current sales conditions, with that gauge rising by 7 points. They were also optimistic about future sales for the first time since August, seeing a rise of 12 points in that gauge. Furthermore, builders experienced an increase in traffic among prospective buyers, with a 5-point rise in that gauge.
Heating Up the U.S. Housing Market
With mortgage rates remaining below 7%, the U.S. housing market is showing signs of warming up. Buyers are eager to jump back in, creating a prime opportunity for home builders. They have new inventory available and are ramping up new projects to meet the demand.
The Positive Outlook for the Housing Market in 2024
The National Association of Home Builders (NAHB) has announced promising news for the housing market in 2024. According to a statement by Robert Dietz, the chief economist at the NAHB, mortgage rates have significantly decreased by more than 110 basis points since late October, resulting in a positive shift in future sales expectations.
Alicia Huey, chair of the NAHB and a custom home builder and developer from Birmingham, Ala., also expressed optimism, stating that single-family starts are expected to grow in 2024. This projected increase in housing construction will contribute greatly to the much-needed inventory in the market.
This positive sentiment is echoed by industry experts like Rob Bowman, the president of Charter Homes & Neighborhoods, a regional builder in Pennsylvania. He stated that they will be starting more homes in 2024 than originally anticipated. The reasons behind this growth include recent home-buyer activity, strong belief in homeownership as a valuable investment, and access to more reasonable mortgage rates.
While the news has been welcomed with optimism, it is important to note the market’s reaction. On Wednesday morning, the yield on the 10-year Treasury note was over 4.1%. As a result, the SPDR S&P Homebuilders exchange-traded fund and major home-builder stocks experienced a slight decline during the morning session.
Overall, the favorable industry trends and positive economic factors are pointing towards a prosperous year for the housing market in 2024. With decreasing mortgage rates and a steady increase in construction, the market is set to witness significant growth and improved supply.
