February marked the third consecutive month of surging confidence among homebuilders, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The index jumped by four points to reach 48, its highest level since August 2023. This uptick reflects builders’ optimism regarding future rate cuts by the Federal Reserve, paving the way for a more favorable market landscape.
“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama, said in a statement.
“And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”
Looking ahead, NAHB forecasts a 5% rise in single-family starts for 2024.
“Stronger homebuilder activity of single-family homes should mean more available inventory for potential buyers and less pressure on home prices than in the heat of the pandemic,” Selma Hepp, chief economist at CoreLogic, said in a statement.
However, amidst this positive momentum, challenges such as lot availability and labor shortages loom large on the horizon, cautioned NAHB chief economist Robert Dietz.
“And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year,” Dietz said.
Additionally, there’s been a notable decrease in price cuts among builders, with only 25% applying reductions compared to 31% in January. Despite this, the average price reduction has remained steady at 6% for the past eight months. Moreover, the use of sales incentives has also declined, indicating a potentially stabilizing market as builders adjust their pricing strategies.1
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Kaye Jones
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