Builder confidence climbs in February
The National Association of Home Builders (NAHB) reports that home builder sentiment continues to show moderate growth.
Builder confidence in the market for newly-built single-family homes climbed four points to 48 in February, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. This is the highest level since August 2023 and marks three straight months of increases for builder confidence.
But the latest figures remain below the benchmark of 50, indicating more builders view conditions as "good" rather than "poor."
The NAHB said expectations that mortgage rates will continue to moderate in the coming months, the prospect of future rate cuts by the Federal Reserve later this year, and a protracted lack of existing inventory have helped fuel builder confidence.
“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”
Huey recently provided her final chairman’s update and delivered remarks on the housing market.
“With future expectations of Fed rate cuts in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5% this year,” said NAHB Chief Economist Robert Dietz. “But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages. And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year.”
Mortgage rates have declined to levels below 7% since mid-December as more builders are cutting back on reducing home prices to boost sales, the NAHB said.
In February, 25% of builders reported cutting home prices, down from 31% in January and 36% in the last two months of 2023. However, the average price reduction in February held steady at 6% for the eighth straight month. Meanwhile, the use of sales incentives is also diminishing. The share of builders offering some form of incentive dropped to 58% in February, down from 62% in January and the lowest share since last August.
The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index.
All three of the major HMI indices posted gains in February. The HMI index charting current sales conditions increased four points to 52, the component measuring sales expectations in the next six months rose three points to 60 and the component gauging traffic of prospective buyers increased four points to 33.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased three points to 57, the Midwest gained two points to 36, the South rose five points to 46 and the West registered a six-point gain to 38.
