Homebuilder sentiment improves for second straight month, following drop in mortgage rates

KEY POINTS

• Homebuilder sentiment improved in January, jumping 7 points to 44 on the National Association of Home Builders monthly index.
• Sentiment is now at the highest level since September.
• The increase coincides with a big drop in mortgage interest rates.

A home is constructed at a housing development on June 21, 2023 in Lemont, Illinois.

Scott Olson | Getty Images

Homebuilder sentiment improved in January, jumping 7 points to 44 on the National Association of Home Builders monthly index. Anything below 50 is still considered negative, but the index has now moved 10 points higher in the last two months.

Sentiment is now at the highest level since September.

The increase coincides with a big drop in mortgage interest rates from around 8% in mid-October to the 6% range in December. Builders point squarely to that, and the effect on affordability, for growing confidence.

"Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs," said Alicia Huey, NAHB chairman and a custom home builder and developer from Birmingham, Alabama. "Single-family starts are expected to grow in 2024, adding much needed inventory to the market. However, builders will face growing challenges with building material cost and availability, as well as lot supply."

Of the index's three components, current sales conditions increased 7 points to 48, sales expectations in the next six months jumped 12 points to 57 and buyer traffic rose 5 points to 29.

Regionally, on a three-month moving average, builder confidence increased the most in the Northeast, the only area now in positive territory at 55. Sentiment was flat in the Midwest and rose slightly in the South and West.