Builder sentiment increased seven points to 42 in February; anything below 50 is considered negative for the National Association of Home Builders’ monthly survey, according to cnbc.com. It reached a record high of 90 in November 2020.
The increase marks the highest reading since September 2022 for the NAHB/Wells Fargo Housing Market Index and the largest monthly gain since June 2013.
Of the homebuilder index’s three components, current sales conditions rose six points to 46; sales expectations in the next six months increased 11 points to 48; and buyer traffic rose six points to 29.
Builders say affordability is improving as mortgage rates fall; the average rate on the 30-year fixed mortgage peaked at 7.37% in October 2022 but spent much of January in the low 6% range. Rates have risen slightly during the past two weeks to the mid-6% range. Builders had been using significant incentives to offset higher mortgage rates but now seem to be pulling back on incentives as rates settle.
“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,” said NAHB Chief Economist Robert Dietz. “And while we expect ongoing volatility for mortgage rates and housing costs, 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.”