A suburban street lined with new homes.

Optimism growing among builders, mortgage industry 

The latest NAHB survey shows improving builder confidence, and even Fannie Mae’s more bearish economists see a recovery ahead.

December 19, 2023
3 minutes

Key points:

  • The National Association of Home Builders’ sentiment index was up three points in December and up six points compared to a year ago.
  • The latest census data shows a significant increase in housing starts, which may help push builder confidence up further.
  • Fannie Mae’s outlook also appears to be improving, with economists predicting a modest recovery in home sales in 2024.

Homebuilders and mortgage economists appear to be feeling more optimistic about the 2024 real estate market as interest rates continue to decline.

The NAHB/Wells Fargo Housing Market Index rose three points to 37 in December, a six-point increase from a year ago, according to the National Association of Home Builders. The most recent survey shows that a majority of builders are still wary — 50 is the midpoint of the index — but after hitting a low of 34 for the year in November, the index may be mirroring last years' trend, where sentiment began rising at the end of 2022 and continued into the first part of 2023.

This optimism is also showing up in the latest economic data. On Dec. 19, the U.S. Census Bureau reported single-family housing starts were at a seasonally adjusted annual rate of 1,143,000, up 18% compared to October and a surprising 42.2% higher than a year ago.

A key reason for the upward trend in confidence? The recent drop in mortgage rates, said NAHB Chief Economist Robert Dietz. He expects sentiment to continue improving following the latest construction numbers.

Even with the burst of new housing starts, construction is not keeping up with demand, said Lisa Sturtevant, chief economist for Bright MLS. She noted that current estimates of the housing shortfall range from three to six million units.

"Without an increase in the housing supply, an entire generation is losing out on the chance to fully take advantage of the benefits of homeownership," Sturtevant said.

Home builders still cutting deals

While sentiment among home builders is on the rise, many are still making deals, according to the NAHB survey. In December, 36% of those surveyed said they cut home prices, tying the November high point for 2023. Another 60% said they provided sales incentives like buying down the rate, which was also the same as November.

Broken down regionally, builders in the Northeast were the most optimistic, with sentiment rising two points to 51. The Midwest fell one point to 34, the South fell three points to 39, and the West dropped four points to 31.

'Meaningful recovery' for home sales in 2024

Builders aren't the only sector of the industry with a (modestly) improving outlook. Fannie Mae's Economic and Strategic Research Group, which has generally been more bearish than other forecasters about the housing recovery, is also projecting optimism. In its December commentary, the group predicts home sales will begin a "slow but meaningful recovery over the course of the next year," along with an increase in mortgage loan activity.

Fannie Mae economists still expect a "mild economic downturn," even if they missed the mark on predictions last year: "Clearly, the many economic forecasters who previously forecasted a recession beginning in 2023 were wrong, including us," said Chief Economist Doug Duncan.

While Duncan acknowledged that a recession was avoided, he believes still-elevated mortgage interest rates and home prices will mean "a slow pace of recovery," not the surge that some other economists are forecasting

"The same dynamics that kept home sales in 2023 at their lowest level since the Great Financial Crisis, including affordability challenges, the lock-in effect, and a lack of homes available for sale, will likely persist in 2024," according to the report.

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