Home Builder Optimism Rises 2nd Straight Month

Home builder sentiment rose by seven points in February, the National Association of Home Builders said Wednesday, to its highest levels since September and signaling optimism going into the spring home buying season.

The NAHB/Wells Fargo Housing Market Index rose to 42, marking the second consecutive monthly increase; the seven-point increase was the largest monthly gain since 2013. Two months ago, the Index bottomed out at 31.

All three HMI indices posted gains for the second consecutive month. The HMI index gauging current sales conditions in February rose by six points to 46; the component charting sales expectations in the next six months increased by 11 points to 48; and the gauge measuring traffic of prospective buyers increased by six points to 29.

Regionally, the Northeast rose by four points to 37; the Midwest edged one-point higher to 33; the South increased by four points to 40; and the West moved three points higher to 30.

NAHB Chief Economist Robert Dietz said two consecutive solid monthly gains for builder confidence, spurred in part by easing mortgage rates, signal that the housing market may be turning a corner even as builders continue to contend with high construction costs and building material supply chain logjams.

“While the HMI remains below the breakeven level of 50, the increase from 31 to 42 from December to February is a positive sign for the market,” Dietz said. “Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle. And 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.”

The report said 31% of builders reduced home prices in February, down from 35% in December and 36% in November. The average price drop in February was 6%, down from 8% in December, and tied with 6% in November. Additionally, 57% offered some kind of incentive in February, down from 62% in December and 59% in November.

The Mortgage Bankers Association releases its monthly Builder Applications Survey this Friday, Feb. 17. On Thursday, HUD and the Census Bureau release the monthly New Residential Constructions report, with data on January housing starts, permits and completions.