After a month of no movement, homebuilder confidence is back on its upward trajectory. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose one point in January to a reading of 47.
The trade group attributes the jump to builders having a more optimistic attitude as they anticipate improved economic growth and regulatory conditions in the coming year. But they are also concerned about the potential impact of building material tariffs and how a larger government deficit could put upward pressure on inflation and mortgage rates.
“Builders are facing continued challenges for housing demand in the near-term, with mortgage rates up from near 6.1% in late September to above 6.9% today,” NAHB Chairman Carl Harris said in a statement. “Land is expensive and financing for private builders remains costly. However, there is hope that policymakers are taking the impact of regulatory hurdles seriously and will make improvements in 2025.”
The optimism felt by builders was reflected in the share of builders that cut home prices, which dropped to 30%, down one percentage point from December. The average price reduction remained steady at 5%, but the share of builders using sales incentives rose one point to 61%.
In addition, the NAHB reported that homebuilders’ gauge of current sales conditions rose three points to 51. The gauge measuring traffic of prospective buyers gained two points for a reading of 33, while the component charting sales expectations over the next six months fell six points to 60. The NAHB attributed this drop to the elevated interest rate environment.
“NAHB is forecasting a slight gain for single-family housing starts in 2025, as the market faces offsetting upside and downside risks from an improving regulatory outlook and ongoing elevated interest rates,” NAHB chief economist Robert Dietz said in a statement. “And while ongoing but slower easing from the Federal Reserve should help financing for private builders currently squeezed out of some local markets, builders report cancellations are climbing as a direct result of mortgage rates rising back up near 7%.”
The three-month moving averages for the HMI rose from December to January in three of the four regions tracked by the index. The South gained one point for a reading of 46, the Northeast rose by five points to 50 and the Midwest jumped one point to 47. The West fell one point to a reading of 40.
