Home Builder Confidence Jumps For First Time In 12 Months — As Housing Market ‘Turning Point’ May Be Here

Topline

Home builder sentiment climbed in January for the first time since December 2021, according to the National Association of Home Builders, a welcome bright spot for the otherwise bleak housing market ravaged by soaring mortgage rates and a potential recession.

Key Facts

The NAHB/Wells Fargo Housing Market Index released Wednesday found the closely-tracked metric rose to 35 this month, with the index tracking survey results from builders regarding current and projected single-family home sales and buyer traffic on a scale of 0 to 100.

That’s a four-point increase from December, but still a far-cry from the 83 reading last January as the housing market deteriorated over the course of 2022.

“A turning point for housing lies ahead,” NAHB chief economist Robert Dietz said in a statement, predicting housing starts, or the number of new homes beginning construction, will soon rise off of their two-year lows as demand recovers following mortgage rates’ projected decline.

Non-housing data also released Wednesday likely spelled good news for mortgage rates, which surged to a two-decade high as the Federal Reserve relentlessly hiked the federal funds rate to combat inflation.

Producer prices fell 0.5% from November to December while retail sales declined 1.1% in that timeframe, both slipping faster than economist estimates, according to federal government data, indicating the Fed’s fight to slow inflation and cool the economy continue to bear fruit, stoking optimism about an upcoming pivot from the central bank.

Key Background

The housing market pandemic-fueled boom in 2020 and 2021 came crashing down to earth last year, with pending home sales slipping dramatically in 2022. The average 30-year mortgage rate climbed from 3.1% in December 2021 to 7.1% in October, according to FreddieMac, with rates dipping slightly to a still-elevated 6.3% as of last week. Redfin forecasted last month that average home prices will decline in 2023 for the first time on an annual basis since 2012.

Surprising Fact

Though stocks were mostly down Wednesday, the bond market staged a massive rally, with yields 10-year U.S. Treasury notes diving 12 basis points to 3.42%, its lowest level since September TK. Declining yields likely indicate an upcoming decrease in mortgage rates considering the historic inverse relationship between the two. The yield curve remains highly inverted, with one-year and three-year Treasury yields at 4.66% and 3.75%, respectively.

Further Reading

Housing Market Recession: Home Builder Sentiment Tanked Every Month This Year—But There’s Finally A ‘Silver Lining’ (Forbes)

Housing Market Predictions For 2023: Home Prices Set To Fall For The First Time In A Decade (Forbes)

Source: https://www.forbes.com/sites/dereksaul/2023/01/18/home-builder-confidence-jumps-for-first-time-in-12-months—as-housing-market-turning-point-may-be-here/