Homebuilder confidence fell again in December, capping off a year of declines every month as soaring mortgage rates, inflation, and buyer affordability issues crimped the market.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) dipped to 31 last month, down 2 points from November and below economists' estimates. It was the lowest reading since June 2012, except for April 2020 during the onset of the COVID-19 pandemic, and the longest stretch of negative results in the index's history. Numbers 50 and below indicate conditions are seen as poor, while those above 50 mean conditions are considered good.
NAHB Chair Jerry Konter explained that "in this high inflation, high mortgage rate environment,” builders are having a hard time keeping home prices affordable. He added that with construction costs up more than 30% since inflation began to jump at the beginning of the year, builders don’t have much room to cut prices.
However, NAHB Chief Economist Robert Dietz said that the decline in the index in December was the smallest in the past six months, indicating that a bottom in builder sentiment may be near. He noted that mortgage rates have been dropping, and for the first time since April, homebuilders’ future sales expectations increased.
Dietz pointed out that the NAHB expects weaker housing conditions to continue next year, but it anticipates a recovery coming in 2024 because of the current nationwide housing deficit, and expectations the Federal Reserve will begin reducing interest rates as inflation eases.