Homebuilders weren't as confident in their business in December, but they are starting to see green shoots.
The National Association of Home Builders/Wells Fargo Housing Market Index shows a two point drop in builder sentiment in December. Negative is defined as anything below 50.
This is the 12th straight month of declines and the lowest reading in over two years. In December of last year, the index was 84.
Robert Dietz, chief economist of the NAHB, said that the silver lining in the report was that it was the smallest drop in the past six months. For the first time since April, builders registered an increase in future sales expectations, as mortgage rates are down from above 7% in recent weeks.
Current sales conditions fell three points to 36, buyer traffic was not changed, and sales expectations in the next six months increased four points to 35.
Sentiment was strongest in the Northeast and lowest in the west.
Despite the recent drop in mortgage rates, they are still two times what they were a year ago. Affordability has plummeted due to that.
Jerry Konter, a builder and developer from Georgia, said that builders are struggling to keep housing affordable for home buyers. A majority of builders are using incentives to boost sales, including paying points for buyers and offering price reductions.
Konter said that builders are having a hard time cutting prices because of the increase in construction costs. 34% of builders reduced prices in December, down from 42% in November.
Dietz said that the National Association of Home Builders expects weaker housing conditions to persist in 2023, and that a recovery will come in 2024, given the existing nationwide housing deficit of 1.5 million units.
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