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Homebuilder confidence rebounds after record declines

The new-home housing market is showing signs this month of a rebound, reversing a record 12 consecutive months of declines spurred by mounting mortgage rates, increasing construction costs and record inflation.

January’s seasonally adjusted market index — which measures perceptions of current home sales and expectations for the next six months — increased to 35 from 31 in December, the lowest since the onset of the COVID-19 pandemic in spring 2020, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

The uptick in builders’ confidence “likely signals a turning point for the market as interest rates stabilize and an end to [Federal Reserve] rate hikes lies ahead,” Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis at NAHB, told Auto Finance News.

All components in the HMI, including traffic of prospective new homebuyers, registered an increase, although the levels remain weak,” she said, adding that while builders are showing signs of optimism, this month’s HMI remains below the “key benchmark level of 50.”

A number above 50 indicates that more builders view conditions as favorable than poor. The index has remained below 50 since July 2022 when the Federal Reserve began to raise interest rates steadily.

December plunge  

Building permits filed in December 2022 fell 29.9% year over year and new housing starts dropped 21.8% due to weakening demand for multifamily homes, according to a report from the U.S. Census Bureau. Single-family housing starts fared better, rising 11.3% from November but down 25% YoY.

Sales of existing homes fell for the 11th straight month in December, posting a 34% drop YoY due to limited inventory and high mortgage rates, according to the National Association of Realtors.

The NAHB forecasts more declines throughout early 2023 before stabilizing and rebounding this summer or fall.