A worker walks on the roof of a new home under construction in Carlsbad, California.
Mike Blake | Reuters
Homebuilders were less confident about their business in December, but they are starting to see potential green shoots.
Builder sentiment in the single-family housing market fell 2 points to 31 in December according to the National Association of Home Builders/Wells Fargo Housing Market Index. Anything below 50 is considered negative.
This is the 12th straight month of declines and the lowest reading since mid-2012, barring a very brief dip at the start of the Covid pandemic. The index stood at 84 in December last year.
“The silver lining of this HMI report is that this is the smallest decline for the index in the past six months, indicating that we may be nearing the bottom of the builder sentiment cycle,” said NAHB chief economist Robert Dietz. “Mortgage rates have fallen from over 7% in recent weeks to around 6.3% today, and for the first time since April, builders have seen an increase in expectations for future sales.”
Across the three index components, current selling conditions fell 3 points to 36, buyer traffic was flat at 20, but expectations to sell over the next six months rose 4 points to 35 .
Regionally, sentiment was strongest in the northeast and weakest in the west, where prices are highest.
The NAHB continues to blame high mortgage rates which, despite the recent drop, are still about double what they were a year ago. This has caused affordability to plummet.
“In this environment of high inflation and high mortgage rates, builders are struggling to keep homes affordable for buyers,” said NAHB President Jerry Konter, a builder and developer from Savannah, Georgia. “Our latest survey shows that 62% of builders use incentives to drive sales, including offering mortgage rate buyouts, paying buyer points and offering price reductions.”
But Konter noted that with construction costs up more than 30% since the start of this year, builders are still struggling to cut prices. About 35% of builders cut home prices in December, down from 36% in November. The average drop in prices was 8%, compared to 5% to 6% earlier in the year.
“NAHB expects weaker housing conditions to persist into 2023, and we expect a recovery to come in 2024, given the existing national housing deficit of 1.5 million units and future mortgage rates. lows expected with Fed easing in 2024,” Dietz said. .
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