Homebuilding sentiment drops again, but bottom may be near

Homebuilders were less confident about their businesses in December, but they’re starting to see potential green shoots.

Construction sentiment in the single-family housing market fell 2 points to 31 in December on the National Association of Home Builders/Wells Fargo housing market index. Anything less than 50 is considered negative.

This is the 12th consecutive month of declines and the lowest reading since mid-2012, barring a very brief dip at the start of the Covid pandemic. The index reached 84 in December last year.

“The silver lining with this HMI report is that it is the smallest decline in the index in the past six months, which indicates that we may be nearing the bottom of the building sentiment cycle,” said NAHB chief economist Robert Dietz. Mortgage rates have fallen from above 7% in recent weeks to about 6.3% todayAnd for the first time since April, construction workers have reported an increase in their expectations for future sales.”

Among the three components of the index, current sales conditions fell three points to 36, buyer movement unchanged at 20, but sales expectations in the next six months increased four points to 35.

Regionally, sentiment was strongest in the Northeast and weakest in the West, where prices are the highest.

NAHB continues to blame high mortgage rates, which despite the recent decline are still about double what they were a year ago. This has caused lower affordability.

“In this hyperinflationary, high mortgage rate environment, builders are struggling to keep housing affordable for homebuyers,” said Jerry Konter, chairman of NAHB, a builder and developer from Savannah, Georgia. “Our latest survey shows that 62% of builders use incentives to boost sales, including providing mortgage rate discounts, paying points to buyers and offering price cuts. “

But Contre noted that with construction costs up more than 30% since the start of this year, construction workers still struggle to bring prices down. Nearly 35% of builders cut home prices in December, down from 36% in November. The average rate cut was 8%, up from 5% to 6% earlier in the year.

“NAHB expects weaker housing conditions to continue into 2023, and we anticipate an upcoming recovery in 2024, given the current nationwide housing deficit of 1.5 million units and future, lower projected mortgage rates as the Fed eases monetary policy,” Dietz said. in 2024.” .