Homebuilder sentiment rises more than expected as mortgage rates fall
Homebuilder sentiment rebounds in December as mortgage rates fall
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Confidence among builders in the U.S. housing market rebounded in December from an 11-month low as high mortgage rates finally began to fall.
The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose three points to 37, slightly more than expected. The increase followed a six-point drop in November.
Any reading below 50 is considered negative.
"With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look," said Alicia Huey, NAHB chair and a custom home builder and developer from Birmingham, Alabama.
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Homes under construction in Sacramento, California, on July 3, 2023. (David Paul Morris/Bloomberg via / Getty Images)
Sentiment among builders began steadily falling at the end of the summer after mortgage rates shot above 7%, throttling demand among would-be homebuyers. But borrowing costs have retreated over the past month as many investors believe the Federal Reserve is done with its aggressive interest-rate hike campaign.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.95%, according to Freddie Mac, down from a high of 7.79% at the end of October but well above the pre-pandemic average of 3.9%.
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Homes in Centreville, Maryland, on April 4, 2023. (Nathan Howard/Bloomberg via / Getty Images)
The recent decline has prompted a burst of optimism among homebuilders that the worst may be over.
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"The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur home buyer demand in the coming months, with the HMI component measuring future sales expectations up six points in December," said NAHB chief economist Robert Dietz.