In December, US homebuilder sentiment saw a boost for the first time in five months. This positive shift occurred following a notable fall in the US mortgage rates.
Over the past month, US mortgage rates have fallen by approximately 50 basis points. It is prompting a 3-point increase in the National Association of Home Builders’ monthly confidence index, reaching a total of 37, as reported by the trade group on Monday.
Additionally, builders maintained sales incentives to generate interest, with 36% reducing home prices.
Looking ahead, falling US mortgage rates are expected to offer further support to builder sentiment in the upcoming months.
Early indicators suggest a weakening US economy, as inflation shows signs of moderation. In response, the US Federal Reserve is considering interest rate falls.
This potential move by the Fed led to a decline in rates below 7% in mid-December, marking the first time they’ve been at this level since August.
A Snapshot of US Housing Dynamics
Surpassing Wall Street expectations, the November figure exceeded economists’ forecasts, who anticipated a mere 2-point increase in sentiment. Comparatively, a year ago, the index was at 31.
Despite the decline, rates remain high, hovering around 7%, posing a challenge for home buyers.
In response, builders continued to lower prices to stimulate sales, with approximately 36% reducing prices, a figure consistent with last month, according to the NAHB. On average, the price fall amounted to 6%.
In December, around 60% of builders employed incentives, beyond price falls, to enhance sales.
However, the three indicators supporting the overall builder-confidence index experienced a decline.
Effect of Fall in US Mortgage Rates and Projections for 2024
Since reaching an almost 8% peak in late October, the average 30-year mortgage rate has consistently decreased every week. As of Thursday, the rate stands at 6.95%, according to data from Freddie Mac.
In 2024, the consensus among major lenders and realtor organizations is that 30-year rates are anticipated to fall within the range of 6% to 7%.
With the current average rate, the monthly expenses for a $300,000 30-year fixed-rate mortgage would be approximately $1,986. Compared to October’s peak rate of 7.79%, this results in a monthly saving of $172. For a $400,000 mortgage, the monthly savings would amount to $229.
The impact of the US mortgage rates fall on buyers’ affordability hinges on factors like income, savings, and home purchase prices.
Regrettably, the upward trend in home prices throughout 2023 may offset the savings from lower interest rates in numerous markets.
Redfin’s recent data indicates a median existing-home price of $413,500, reflecting a year-over-year increase of 3.4%.
Builders Optimistic Amid US Mortgage Rates Fall
Builders held mixed views on current sales conditions, resulting in an unchanged gauge. However, optimism prevailed regarding future sales, reflected in a 6-point increase in the gauge.
Additionally, builders observed a rise in the traffic of potential buyers, with the gauge increasing by 3 points.
Highlighting a decline of approximately 50 basis points in the last month, the NAHB pointed out that mortgage rates have decreased.
The recent shift by the Fed in mid-December suggests the possibility of additional US mortgage rates fall, which could potentially stimulate both home construction and sales.
Additional US mortgage rates fall translate to lower borrowing expenses for households aiming to purchase homes. Simultaneously, builders benefit from lower costs in this favorable rate environment.
Robert Dietz, the chief economist at the NAHB, stated,
“The housing market seems to have moved beyond the highest mortgage rates for this cycle. This is expected to boost home buyer demand in the upcoming months, as indicated by the component measuring future sales expectations, which increased by six points in December.”
On Monday morning, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) was below 4%.
During the morning session, the SPDR S&P Homebuilders ETF (XHB) experienced a decline, along with major homebuilder stocks such as D.R. Horton Inc (DHI), Toll Brothers (TOL), and Lennar (LEN). Meanwhile, the DJIA and SPX stocks showed an upward trend.