Builders Optimistic as Mortgage Rates Drop
Builders in the U.S. housing market have regained confidence in December after an 11-month low, thanks to a decrease in high mortgage rates. The National Association of Home Builders/Wells Fargo Housing Market Index, which gauges the state of the single-family housing market, rose three points to 37, slightly exceeding expectations. This increase comes after a six-point decline in November. Any reading below 50 is considered negative.
Lower Mortgage Rates Attracting Prospective Buyers
Alicia Huey, NAHB chair and a custom home builder and developer from Birmingham, Alabama, explains that the recent drop in mortgage rates has led to an increase in builders’ traffic. Prospective buyers who previously felt priced out of the market are now taking a second look. The decline in mortgage rates has been approximately 50 basis points over the past month.
Home Foreclosures on the Rise Nationwide
Sentiment among builders started to decline at the end of summer as mortgage rates exceeded 7%, stifling demand from potential homebuyers. However, borrowing costs have decreased in the past month as investors believe the Federal Reserve has completed its aggressive interest-rate hike campaign. Currently, rates on the popular 30-year fixed mortgage are around 6.95%, down from a peak of 7.79% in October but still considerably higher than the pre-pandemic average of 3.9%.
Builders Optimistic About the Future
The recent decline in mortgage rates has sparked a wave of optimism among homebuilders, who believe that the worst may be over. NAHB chief economist Robert Dietz states, “The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur homebuyer demand in the coming months, with the HMI component measuring future sales expectations up six points in December.”