The numbers: Builder confidence surged in January as falling mortgage rates drew in home buyers from the sidelines.
The 30-year mortgage rate stayed well below 7%, which pushed the National Association of Home Builders’ monthly confidence index up 8 points to 44 in January, the trade group said on Wednesday.
The index is up for the second month in a row.
The January figure exceeded what economists were forecasting on Wall Street, which was expecting sentiment to rise to 39.
A year ago, the index stood at 35.
Key details: Even though rates are lower, many builders are still cutting prices to attract buyers and boost sales. About 31% of builders cut prices, down from 36% in December, the NAHB said. The average price cut was 6%.
About 62% of builders were also using incentives other than price cuts to improve sales in January.
The three gauges that underpin the overall builder-confidence index rose:
- Builders were upbeat about current sales conditions. That gauge rose 7 points.
- They were also optimistic about future sales for the first time since August. That gauge rose by 12 points.
- Builders were seeing an increase in traffic among prospective buyers. That gauge rose by 5 points.
Big picture: The U.S. housing market is warming up as rates stay below 7%, and buyers are eager to jump back in. Home builders are in a prime position to capture buyers’ interest since they have new inventory to offer and are ramping up new projects to meet demand.
What the NAHB said: “Mortgage rates have decreased by more than 110 basis points since late October per Freddie Mac, lifting the future sales expectation component in the [housing-market index] into positive territory for the first time since August,” Robert Dietz, chief economist at the NAHB, said in a statement.
“Single-family starts are expected to grow in 2024, adding much needed inventory to the market,” Alicia Huey, chair of the NAHB and a custom home builder and developer from Birmingham, Ala., said in a statement.
What they are saying: “We are going to start more homes in 2024 than we anticipated starting six months ago,” Rob Bowman, president of Charter Homes & Neighborhoods, a regional builder in Pennsylvania, told MarketWatch.
“This is largely attributable to recent home-buyer activity, their belief in homeownership, the confidence in homeownership as an investment and access to more reasonable rates,” he added.
Market reaction: The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was over 4.1% on Wednesday morning.
The SPDR S&P Homebuilders exchange-traded fund
XHB
traded lower during the morning session, as did big home-builder stocks like D.R. Horton
DHI,
Toll Brothers
TOL,
and Lennar
LEN,
