Home Builder Confidence Persists

Confidence among U.S. single-family homebuilders improved for a second straight month in February — and by much more than economists had anticipated — in a fresh signal the housing market was turning a corner after last year's huge slump.

The National Association of Home Builders on Wednesday said its NAHB/Wells Fargo Housing Market index rose seven points to 42 this month, notching the largest monthly gain in nearly a decade outside of the rebound from the spring 2020 COVID-19 lockdowns.

The reading — the highest since September — was also higher than all 33 projections in a Reuters survey of economists, which had a median estimate of 37. A reading below 50 indicates that more builders view conditions as poor rather than good.

The improvement this month builds on January's reading, which had snapped a record-long string of 12 consecutive monthly declines in construction firms' sentiment that had coincided with the biggest annual drop in sales of new homes in 2022 since 2008, a plunge of more than 26%.

Total home sales — including the far-larger market for existing homes — tumbled 33% last year as aggressive interest rate increases by the Federal Reserve aimed at containing high inflation drove up mortgage costs and stymied housing demand. The Fed is likely to deliver at least two more rate increases in coming months but appears to be closing in on the end-point for the current rate-hike cycle.

"(T)he two monthly gains for the HMI at the start of 2023 match the cautious optimism noted by the large number of builders at the recent International Builders’ Show in Las Vegas, who reported a better start to the year than expected last fall," NAHB Chairman Alicia Huey, a builder from Birmingham, Alabama, said in a statement.

Moreover, it appears that the peak in mortgage rates has passed, said NAHB Chief Economist Robert Dietz. Interest rates on the most-popular U.S. home loan - the 30-year fixed-rate mortgage - topped out above 7% in October but have receded since, with the latest in a Mortgage Bankers Association weekly survey seen at 6.39%.

"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," Dietz said.

NAHB said all four regions saw improved sentiment and the index tracking expectations for future sales rose for a third month. Its gauge of buyer traffic also ticked higher.