Builders Are Feeling More Confident Than Ever
Wow, January was a big month for home builders! Their confidence levels shot up by the highest amount in almost 10 years!
I’m not making this up – the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index just released their report on February 15. It turns out that builder confidence in the market for newly-built single-family homes went up by a whopping seven points, bringing it to a total of 42.
This isn’t just a one-time thing, either. Builders have been feeling pretty good about things for two months in a row now. They’ve been riding the wave of falling mortgage rates, which has definitely given them a boost in confidence.
According to NAHB Chair Alicia Huey, this increase in builder confidence might actually be a sign that things are starting to turn around in the housing market. But let’s not forget that builders still have their fair share of challenges, like higher construction costs and problems with the supply chain.
Wow, I can’t believe it! According to the latest Home Builders Index (HMI), builder sentiment has seen its biggest increase in over seven years, since June 2013. This means that the market is finally starting to attract buyers thanks to improvements in housing affordability, exclaimed Alicia Huey, Chairman of the National Association of Home Builders (NAHB). Alicia, who is a custom home builder and developer from Birmingham, Alabama, believes that this positive trend is crucial in addressing the housing shortage that our country is facing.
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The Struggle to Build Affordable Homes
However, Alicia acknowledges that building homes at entry-level prices remains a challenge. In order to tackle this issue head-on, she urges policymakers to step in and play their part by implementing regulatory reforms that can help decrease the cost of developing lots and constructing homes. This way, we can work towards closing the housing gap and ensuring that everyone has access to affordable and attainable housing.
Mortgage Rates Set to Rise
I wanted to give you the heads up about something important: mortgage rates are expected to go up soon. According to Freddie Mac, the average 30-year fixed rate mortgage reached its highest point at 7.08% in October. Although rates dropped to around 6.1% at the beginning of February, the 10-year Treasury rate has been going up over the past two weeks. This suggests that mortgage rates will be increasing in the near future.
Our friend, Robert Dietz, who is the Chief Economist at NAHB, has mentioned that the forecasts are showing that the housing market has passed its peak mortgage rates. He also said that the rise in the Housing Market Index is really encouraging.
I’ve got some good news for you about the housing market, said Robert Dietz, the Chief Economist at NAHB. Even though the market is still below the break-even point of 50, we’ve seen some improvement recently. From December to February, the Home Builder Confidence Index (HMI) increased from 31 to 42. That’s a positive sign that things are looking up.
Dietz went on to say that even though mortgage rates and housing costs may continue to fluctuate, he believes that the building market will become more stable in the coming months. He also mentioned that builders are doing their best to attract buyers by offering various incentives.
The Housing Market by the Numbers
In February, 31% of builders reduced home prices, which is a decrease from the 35% in December and 36% in November. This shows that builders are becoming more confident in the market.
The average price drop in February was 6%, which is lower than the 8% in December. It’s also the same as the drop in November, indicating that prices are starting to level out.
About the Housing Market Index
Let me tell you about the Housing Market Index (HMI). It’s based on a monthly survey done by NAHB (National Association of Home Builders) for more than 35 years. Pretty cool, right? They ask builders like me how we feel about the current sales of single-family homes and how we think it will be in the next six months. We can rate it as good, fair, or poor. They also want to know how many interested buyers we have, so we give them a rating from high to very high, average, or low to very low.
After gathering all this information, they calculate a special index that takes the scores from each part into consideration. If the final number is above 50, that means most builders think the conditions are good. Pretty straightforward, huh?
I’m happy to share that all three HMI indices have shown positive growth for the second month in a row. In February, the index measuring current sales conditions went up by six points to reach 46. The component that predicts sales expectations over the next six months jumped 11 points to 48. And the measure assessing the traffic of potential buyers rose by six points to 29.
Let’s take a look at the average scores for the past three months in each region. In the Northeast, we saw a four-point increase, bringing it up to 37. The Midwest had a slight improvement, going up by one point to reach 33. In the South, there was a four-point growth, reaching 40. Lastly, in the West, we observed a three-point increase, bringing it up to 30.
