12 For 12

In a “surprising” development, US homebuilder sentiment deteriorated again in December.

The scare quotes are there to denote that the only people who could’ve possibly been surprised by a 12th straight decline on the NAHB/Wells Fargo gauge were economists.

To be fair, not every forecaster was taken aback by another lackluster read on the beleaguered US housing market. The range of estimates, spanning nearly three-dozen guesses, was 27-35. So, at 31, the actual headline print could’ve been worse.

“The silver lining… 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, NAHB chief economist, said Monday. The figure (above) illustrates his point, and also underscores the scope of the ongoing malaise.

The NAHB has consistently described a “housing recession” in the US, brought on by the most rapid pace of Fed rate hikes in a generation.

Mortgage rates have receded over the past several weeks, and as Dietz went on to note, that helped drive the first increase in forward-looking sales expectations since April (figure below).

Again: That uptick was almost surely attributable to the ~70bps decline in average mortgage rates which accompanied a sharp drop in long-end US Treasury yields.

All belabored attempts to construct (no pun intended) a glass half-full narrative, the situation for builders is suboptimal, to register a late candidate for understatement of the year.

NAHB Chairman Jerry Konter, who’s also a builder, said nearly two-thirds of his peers are resorting to incentives to boost sales, including buy-downs and paying points for buyers. The problem is that construction costs are up by a third since the onset of above-target inflation in the US. That means margins are under pressure, leaving very little room for concessions, let alone outright price cuts.

“Only 35% of builders reduced homes prices in December,” down from 36% in November, Konter remarked on Monday, adding that the average price reduction was 8%, up markedly from just 5% earlier this year.

Ultimately, Dietz suggested, the well-documented national supply deficit, demographics and the rate cuts the Fed tipped for 2024 in the latest dot plot, should bring relief for the market over the medium-term. In the near-term, though, it’ll be challenging. The NAHB expects conditions to remain weak in 2023.