Builders Turn ‘Cautiously Optimistic’ in Feb.

The NAHB index measuring builders’ attitudes rose 7 points this month to 42. While 51 and higher leans positive more than negative, it suggests better times ahead.

WASHINGTON – For the second month in a row, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) identified rising optimism among builders about the state of the new-home market.

Builder confidence in the market for newly built single-family homes in February rose seven points to 42 – the strongest reading since September 2022 – and 7 points is the largest one-month increase since June 2013.

Two consecutive solid monthly gains spurred in part by easing mortgage rates may be a signal that the housing market has turned a corner, according to NAHB’s release, though it still notes ongoing challenges, including high construction costs and supply-chain logjams.

“The nation continues to face a sizeable housing shortage that can only be closed by building more affordable, attainable housing,” says NAHB Chairman Alicia Huey. “However, the 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 (they) expected last fall.”

Huey called on policymakers to “help by reducing the cost of developing lots and building homes via regulatory reform,” noting that entry-level homes remain the most challenging part of the new-home market.

“While the HMI remains below the break-even level of 50, the increase from 31 to 42 from December to February is a positive sign for the market,” adds 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.”

Even with ongoing mortgage and cost volatility, Dietz says 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.”

Builder incentives to boost Feb. sales 

  • 31% reduced home prices in February, down from 35% in December and 36% in November
  • They dropped prices an average 6%, down from 8% in December, and tied with 6% in November
  • 57% offered some kind of incentive in February, down from 62% in December and 59% in November

All three HMI indices posted gains for the second consecutive month. The HMI index gauging current sales conditions in February rose six points to 46, the component charting sales expectations in the next six months increased 11 points to 48 and the gauge measuring traffic of prospective buyers increased six points to 29.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose four points to 37, the Midwest edged one-point higher to 33, the South increased four points to 40 and the West moved three points higher to 30.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

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