Homebuilder Confidence Improves at Fastest Pace in a Decade

Homebuilder confidence in the single-family market improved this month at the fastest pace in almost a decade, buoyed by slightly lower mortgage rates, according to the National Association of Home Builders/ Wells Fargo Housing Market index.

It was the second straight monthly gain for the index, which rose 7 points, the most since June 2013.

“The HMI indicates that incremental gains for housing affordability have the ability to price-in buyers to the market,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala.

The index is rising again after falling to 31 by December as mortgage rate increases depressed demand. The index fell from a value of 81 in February 2022.

“While the HMI remains below the breakeven level of 50, the increase from 31 to 42 from December to February is a positive sign for the market,” said NAHB Chief Economist Robert Dietz. “Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle."

As borrowing rates rose over the past year, total home sales, both new and existing, have dropped by about a third from the previous year, even as the supply of available houses for sale has fallen. With lower rates, demand is returning and builders are likely to benefit from the lack of inventory.

Dietz said that while the group expects mortgage rates and housing costs to remain volatile, the new-build market should find stability in coming months. The NAHB said the market appears to be stabilizing after coming off a cyclical low. 

"The building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024," Dietz added.

Builders in all four regions reported an increase in confidence across the country, with the Northeast and South seeing the largest increases.