For the second consecutive month in February, and significantly more than economists had predicted, builders of single-family homes in the United States reported increased confidence, providing more evidence that the housing market was recovering from a severe downturn that began last year.
The NAHB/Wells Fargo Housing Market index increased seven points to 42 this month, the highest monthly gain in over a decade outside of the recovery from the spring 2020 COVID-19 lockdowns, according to the National Association of Home Builders on Wednesday.
The reading, which is the highest since September, exceeded all 33 expectations in an analyst survey conducted by Reuters, with a median estimate of 37. A number below 50 implies that more contractors consider the situation to be poor as opposed to favorable.
The improvement this month builds on January’s reading, which had broken a record-long string of 12 consecutive monthly declines in construction firms’ sentiment. These declines had occurred in tandem with the biggest annual decline in sales of new homes since 2008 in 2022, a drop of more than 26%.
Total home sales, which include the far bigger market for existing homes, fell 33% last year as a result of the Federal Reserve’s aggressive interest rate rises, which increased mortgage prices and stifled housing demand. Although the Fed is projected to deliver at least two more rate rises in the upcoming months, the current rate-hike cycle seems to be nearing its conclusion.
The NAHB Chairman, Alicia Huey, a builder from Birmingham, Alabama, said in a statement that “(t)he two monthly gains for the HMI at the start of 2023 match the cautious optimism noted by the large number of builders at the recent International Builders’ Show in Las Vegas, who reported a better start to the year than expected last fall.
Furthermore, according to Robert Dietz, chief economist for the NAHB, it appears that the peak in mortgage rates has passed. The 30-year fixed-rate mortgage, the most common type of home loan in the United States, had interest rates that peaked above 7% in October, but they have since declined. The most recent figure reported in a Mortgage Bankers Association weekly survey is 6.39%.
While we anticipate continued volatility in mortgage rates and housing costs, Dietz predicted that the building market will stabilize soon and then rebound to trend house construction levels later in 2023 and at the start of 2024.
According to NAHB, mood improved across all four areas, and the index measuring future sales expectations increased for a third month. Additionally, the indicator of buyer traffic increased.
