As Interest Rates Fall, Builder Sentiment Rises

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) indicates that for January, builder confidence in the market for newly built single-family homes rose seven points to 44. That marks the second consecutive monthly increase in builder confidence, according to NAHB's Eye On Housing. In fact, all three of the major HMI indices posted gains in January: the index tracking current sales conditions went up by seven points to 48, the component that measures sales expectations during the next six months leapt by 12 points to 57, and the index gauging traffic of prospective buyers increased by five points to 29.

With mortgage rates dropping since late October, the HMI's future sales expectation component is also looking positive for the first time since last August. But NAHB also anticipates some supply-side challenges—higher prices and shortages of lumber, lots, and labor—as home building expands in 2024.

Even as mortgage rates have fallen below 7% over the past month, many builders continue to reduce home prices to boost sales. In January, 31% of builders reported cutting home prices, down from 36% during the previous two months and the lowest rate since last August. The average price reduction in January remained at 6%, unchanged from the previous month. Meanwhile, 62% of builders provided sales incentives of all forms in January. This share has remained stable between 60% and 62% since October.

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