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In March, confidence among U.S. home builders surged to its peak since July, attributed to reduced mortgage rates and better pricing conditions amid ongoing shortages in existing home inventory, according to the National Association of Home Builders. The NAHB/Wells Fargo Housing Market Index, reflecting builder confidence, climbed to 51 this month, up from the unchanged 48 in February, defying economists? expectations of it remaining at 48, as per a Reuters poll.
NAHB Chairman Carl Harris stated that with buyer demand staying strong, they anticipate an increase in consumers entering the market if mortgage rates continue to decline later in the year. During the latter part of last year, traffic slowed due to interest rate hikes by the Federal Reserve, initiated in March 2022 to address inflation. These tightening measures pushed the average rate for a 30-year fixed-rate mortgage to levels not seen in two decades, peaking near 8% in October.
As the U.S. central bank approaches the probable conclusion of its rate hiking phase, the 30-year fixed-rate mortgage averaged 6.74% for the week ending March 14, as reported by Freddie Mac. This decrease has enticed buyers to enter the market, leading to an increase in the index of prospective buyers from a low point of 21 in November to 34 in March, marking the highest level since August 2023, as per the NAHB.
Lower mortgage rates have enabled builders to refrain from significantly reducing home prices. Just in December, over a third of builders were providing price concessions. However, by March, this figure dropped to 24%, the lowest since July 2023, as reported by the NAHB, although 60% were still offering incentives of some kind.
The uptick in builders? confidence could result in a rise in single-family home starts throughout 2024, as suggested by Nancy Vanden Houten, the lead economist at Oxford Economics. She noted that over 50% of home builders are still providing incentives to stimulate sales. These incentives, coupled with a shortage of existing homes for sale and an uptick in single-family housing starts, are expected to bolster new home sales in the upcoming months.
The U.S. government is set to unveil housing starts and building permits data for February on Tuesday, with a Reuters poll suggesting a probable rebound from January?s decline in both. Additionally, another Reuters poll anticipates that new home sales likely increased for the third consecutive month in February. This data is scheduled for release next week.
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