A wage-earner walks on the roof of a new home under construction in Carlsbad, California.
Mike Blake | Reuters
Homebuilders were short confident about their business in December, but they are starting to see potential green shoots.
Builder sentiment in the single-family case market dropped 2 points to 31 in December on the National Association of Home Builders/Wells Fargo Housing Supermarket Index. Anything below 50 is considered negative.
This is the 12th straight month of declines and the lowest reading since mid-2012, with the irregularity of a very brief drop at the start of the Covid pandemic. The index stood at 84 in December of last year.
“The shining lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the heart of the cycle for builder sentiment,” said the NAHB’s chief economist, Robert Dietz. “Mortgage rates are down from overhead 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an escalation in future sales expectations.”
Of the index’s three components, current sales conditions fell 3 points to 36, client traffic was unchanged at 20, but sales expectations in the next six months increased 4 points to 35.
Regionally, sentiment was strongest in the Northeast and weakest in the West, where amounts are highest.
The NAHB continues to blame high mortgage rates, which despite the recent drop are still around twice what they were a year ago. That has caused affordability to plummet.
“In this high inflation, stiff mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB Chairman Jerry Konter, a builder and developer from Savannah, Georgia. “Our latest study shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, get even with points for buyers and offering price reductions.”
But Konter noted that with construction costs up more than 30% since the source of this year, builders are still having a hard time cutting prices. Roughly 35% of builders knock down homes prices in December, down from 36% in November. The average price reduction was 8%, up from 5% to 6% earlier in the year.
“NAHB is enceinte weaker housing conditions to persist in 2023, and we forecast a recovery coming in 2024, given the existing nationwide cover deficit of 1.5 million units and future, lower mortgage rates anticipated with the Fed easing monetary design in 2024,” said Dietz.