It’s the 12th month in a row that the index has fallen.
Outside of the pandemic, the December reading of 31 is the lowest level since mid-2012.
A year ago, the NAHB index stood at 84. The index’s 12-month drop is a new record.
But it’s not the biggest drop, the NAHB said. The drop in builder confidence between the end of 2004 and the start of 2009 was sharper; the index fell from 71 to 8 in that span.
Key details: The three gauges that underpin the overall confidence index were mixed:
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The gauge that marks current sales conditions fell by 3 points.
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The component that assesses sales expectations for the next six months rose by 4 points.
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And the gauge that measures traffic of prospective buyers was unchanged from last month.
All four NAHB regions posted a drop in builder confidence, led by the South and the Northeast.
Big picture: While builders continue to struggle to find buyers with the current rate environment, they’re also seeing a light at the end of the tunnel.
Buyers are slowly coming back to the table as mortgage rates are no longer above 7%, and home price growth is moderating.
And with 62% of builders offering incentives like mortgage rate buy-downs, paying points for buyers, and even price reductions, that luring some buyers, per the NAHB.
About 35% of builders were dropping home prices in December, the NAHB said, with the average price reduction being 8%.
What the NAHB said: “The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” Robert Dietz, chief economist at the NAHB, said in a statement.
“Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations,” he added.
But the NAHB is expecting “weaker housing conditions” to persist in 2023, and only forecasts a full recovery in 2024, Dietz said. There is still a gap of 1.5 million housing units, they estimated nationwide.
Nonetheless, the path to recovery is hard, the builders stressed.
“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” Jerry Konter, chairman of the NAHB and a home builder and developer from Savannah, Ga., said in a statement.
“With construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices,” Konter added.
What are they saying? “We think home sales will find a floor by the end of the first quarter, helped by the near-75 [basis point] decline in mortgage rates since late October,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a note.
“But a meaningful recovery is still a long way off, and home prices have much further to fall,” he added.
Market reaction: The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.597%
rose to 3.57% on Monday morning.
While the SPDR S&P Homebuilders ETF
XHB,
-1.67%
traded slightly lower during the morning session, as well as big home builder stocks like D.R. Horton Inc
DHI,
-1.44%,
Toll Brothers
TOL,
-0.87%,
and Lennar
LEN,
-2.28%.
