US homebuilders were in a slightly better mood this month, survey data released on Monday showed.
Builder sentiment rose in December for the first time since July. It’s amazing what lower mortgage rates can do to improve morale.
At 37, the NAHB gauge matched estimates. I doubt I need to recapitulate. Nevertheless. Sentiment fell every month in 2022 as the Fed dialed up the most aggressive rate-hiking campaign in a generation and buyers struggled with an increasingly onerous affordability calculus. Things turned around early this year, when a dearth of resale inventory left new construction as the only game in town. Then, beginning in August, a sharp selloff at the long-end of the US Treasury curve pulled mortgage rates sharply higher, undercutting sentiment anew.
Now here we are, in December, with lenders quoting six-handle rates again on the heels of a dramatic bond rally that saw 10-year Treasury yields fall by a full percentage point (and then some) from late-October’s intraday cycle highs.
“With mortgage rates down… builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” NAHB Chairman Alicia Huey said Monday.
That’s good news at the margins, but I fear the “second look” for Huey’s “prospective buyers” is only favorable relative to the disconcerting first look. Prices are still very high and although rates aren’t (high) on a long enough lookback, most first-time homebuyers aren’t old enough to remember a time when rates weren’t more forgiving than they are currently. Broadly speaking, 2023 was the least affordable year for home-buying on record.
The good news is that new construction actually can be a semblance affordable given builders have the leeway to offer various incentives and can also build more modest houses on smaller lots in order to get prices lower. New home prices fell the most on record in October, according to volatile government data. A fresh read on that series is due later this week.
More than a third of builders cut prices in December, the NAHB release showed. At 36%, that share was tied with November for the highest of 2023.
“The housing market appears to have passed peak mortgage rates for this cycle,” NAHB Chief Economist Robert Dietz remarked. “This should help to spur homebuyer demand in the coming months.” A gauge of future sales rose half a dozen points in December.
No housing update would be complete without checking Redfin’s news section, where Bloomberg veteran Lily Katz is always ready with lively commentary and near real-time data. “Buyers and sellers [are] tired of waiting on the sidelines,” she wrote, in a recent piece which noted that new listings and pending sales are trending higher as rates fall.
Katz quoted a Redfin Premier agent in Las Vegas who said, “another reason sales are ticking up is buyers and sellers are finally living in the same reality.” This time last year, “sellers had trouble understanding why they weren’t getting $20,000 over list like their neighbor did during the pandemic homebuying boom,” the agent told Katz. “Now, they understand that to sell their home, they need to price it fairly and in some cases offer concessions.” (Say it ain’t so.)
