Rising market confidence among homebuilders

Confidence in the housing market is still relatively low among US homebuilders, but is on the rise. According to the latest National Association of Home Builders/Wells Fargo Housing Market Index released Jan. 18, homebuilder confidence jumped four points to 35 in January.

The index measures homebuilder sentiment through monthly surveys that ask builders to assess the market for new construction housing based on current sales, near-term sales expectations and buyer volume. Scores above 50 indicate that more builders view the conditions as positive rather than negative.

Last year we saw the housing market go through a sharp shift in homebuilder sentiment, coinciding with rising interest rates, high material costs and some slack in demand. This led to declines in the housing market index not seen since 2012.

According to the NAHB, the current uptick is largely due to a slight drop in mortgage rates. Still, these were the first monthly gains seen in the three facets of the housing market index since December 2021, and NAHB Chairman Jerry Conter is optimistic about what lies ahead. “Elevating builder sentiment means that a recovery in housing construction could begin later in 2023,” Conter said in a statement.

“The housing market cooled rapidly in 2022 as affordability issues were further compounded by rising mortgage rates and continued supply disruptions,” said Greg McBride, CFA, Bankrate’s chief financial analyst. “As a result, it’s no surprise that we’ve seen 12 consecutive months of declines in builder sentiment. The decline in mortgage rates over the past few weeks has broken that streak.”

This pullback in interest rates, if sustained, could signal a more stable market in 2023. increase housing affordability,” said Robert Dietz, NAHB’s chief economist. “Looks like a tipping point for housing is coming.”

Real estate is hyper-local, so it’s not surprising that homebuilders in different regions of the country expressed different sentiments about their local markets. Homebuilders in the South remained stable in their outlook, unchanged on a monthly basis in their score of 36, the highest score of the four regions surveyed. In the West, scores actually rose, with January 27th a one-point increase over December. However, the Midwest’s score dropped two points, from 34 to 32, and the Northeast saw the steepest drop, dropping four points from 37 to 33.

The uptick in homebuilder optimism, albeit slightly, suggests there is some positivity on the horizon for buyers. Here are some takeaways for those looking to buy a home in 2023.

Housing supply is still likely to fall short of demand

Although confidence may be on the rise, recession fears are still strong. “Homebuilding is likely to remain muted in the coming months as economic activity slows,” McBride said. This means that available housing stock will remain low, keeping many areas firmly in seller’s market territory.

In addition, Dietz noted that demand could increase if mortgage rates continue to fall, making home buying more affordable: “Improved housing affordability will increase demand for housing as the nation struggles with a structural deficit of housing of 1.5 million units.”

Housing prices can vary widely

As some builders cut prices to boost sales, new-build homebuyers may find bargains in 2023, especially at the start of the year. Conversely, if mortgage rates continue to fall and overall housing inventory remains scarce, the imbalance between supply and demand could cause prices to remain high (or even rise). Make sure you have a thorough understanding of your particular market – an experienced local real estate agent can help.

Be smart about your finances

The housing market is tough for many right now, and even with mortgage rates starting to fall, they are still significantly higher than last year. If you’re hoping to buy this year, make sure you’re prepared:

  • Repayment of debts: A lower debt-to-income ratio and higher credit score will help you qualify for a better interest rate on your mortgage.
  • Save for a down payment: The bigger the down payment you can make up front, the lower your monthly payments will be.
  • Work with an experienced agent: In complex markets, it’s more important than ever for homebuyers to work with an agent who truly understands the ins and outs of your local real estate scene and can guide you through the journey.

Bottom row

The latest NAHB Housing Market Index shows that while homebuilder sentiment may still be low, it’s starting to change. For the first time in a year, the results are more positive than the previous month.

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