VOL 2023 ISSUE 2
PUBLISHED BY THE EL PASO ASSOCIATION OF BUILDERS : NATIONAL , STATE AND LOCAL HOME BUILDING INDUSTRY NEWS
Cautious Optimism for Builders
Two consecutive solid monthly gains for builder confidence , spurred in part by easing mortgage rates , signal that the housing market may be turning a corner even as builders continue to contend with high construction costs and building material supply chain logjams . Builder confidence in the market for newly built single-family homes in February rose seven points to 42 , according to the National Association of Home Builders ( NAHB )/ Wells Fargo Housing Market Index ( HMI ) released today . This is the strongest reading since September of last year . “ With the largest monthly increase for builder sentiment since June 2013 , excluding the period immediately after the onset of the pandemic , the HMI indicates that incremental gains for housing affordability have the ability to price-in buyers to the market ,” said NAHB Chairman Alicia Huey , a custom home builder and developer from Birmingham , Ala . “ The nation continues to face a sizeable housing shortage that can only be closed by building more affordable , attainable housing . However , the two monthly gains for the HMI at the start of 2023 match the cautious optimism noted by the large number of builders at the recent International Builders ’ Show in Las Vegas , who reported a better start to the year than expected last fall .” Noting that the most challenging part of the home building market remains construction of entry-level homes , Huey called on policymakers to “ help by reducing the cost of developing lots and building homes via regulatory reform .” The average 30-year fixed rate mortgage rate peaked at 7.08 % in October , according to Freddie Mac . Although rates declined to approximately 6.1 % at the start of February , the 10-year Treasury rate has moved up more than 30 basis points during the past two weeks , indicating an increase for mortgage rates lies ahead . “ While the HMI remains below the breakeven level of 50 , the increase from 31 to 42 from December to February is a positive sign for the market ,” said NAHB Chief Economist Robert Dietz . “ Even as the Federal Reserve continues to tighten monetary policy conditions , forecasts indicate that the housing market has
passed peak mortgage rates for this cycle . And while we expect ongoing volatility for mortgage rates and housing costs , the building market should be able to achieve stability in the coming months , followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024 .” And while builders continue to offer a variety of incentives to attract buyers during this housing downturn , recent data indicate that the housing market is showing signs of stabilizing off a cyclical low :
• 31 % of builders reduced home prices in February , down from 35 % in December and 36 % in November .
• The average price drop in February was 6 %, down from 8 % in December , and tied with 6 % in November .
• 57 % offered some kind of incentive in February , down from 62 % in December and 59 % in November .
Derived from a monthly survey that NAHB has been conducting for more than 35 years , the NAHB / Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “ good ,” “ fair ” or “ poor .” The survey also asks builders to rate traffic of prospective buyers as “ high to very high ,” “ average ” or “ low to very low .” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor . All three HMI indices posted gains for the second consecutive month . The HMI index gauging current sales conditions in February rose six points to 46 , the component charting sales expectations in the next six months increased 11 points to 48 and the gauge measuring traffic of prospective buyers increased six points to 29 . Looking at the three-month moving averages for regional HMI scores , the Northeast rose four points to 37 , the Midwest edged one-point higher to 33 , the South increased four points to 40 and the West moved three points higher to 30 . HMI tables can be found at nahb . or / hmi . More information on housing statistics is also available at Housing Economics PLUS ( formerly housingeconomics . com ). Regionally , on a year-to-year basis , new home sales fell in all four regions , down 8.2 % in the Northeast , 22.1 % in the Midwest , 13.0 % in the South and 23.5 % in the West .