Homebuilder sentiment increases by most in nearly a year

U.S. homebuilder sentiment climbed January by the most in nearly a year as lower mortgage rates boosted customer traffic, sales and the demand outlook.

The National Association of Home Builders/Wells Fargo gauge of housing market conditions increased seven points to 44, according to data out Wednesday. The January figure exceeded all estimates in a Bloomberg survey of economists.

A drop in mortgage rates from an October peak near 8% is helping to thaw the housing market. Even with the strong advance to start 2024, the index is still well below pre-pandemic levels, suggesting momentum may be slow to build with borrowing costs still twice as high as they were two years ago.

"Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall," Alicia Huey, chair of the NAHB, said in a statement. "Single-family starts are expected to grow in 2024, adding much needed inventory to the market."

The group's measure of expected sales increased 12 points, the most since June 2020, while the gauges of prospective buyer traffic and current sales both rose to four-month highs. Builder sentiment improved in three of four regions, led by sizable advances in the South and West.

With rates below 7%, some builders are stepping back from price cuts. This month, 31% of builders reported lowering prices, the smallest share since August. The average reduction held at 6%, according to the report.

At the same time, many are offering incentives to prospective buyers. Some 62% indicated they provided some form of incentive, in line with the share in recent months.