Builder Sentiment Is Still Down in November, but Forecast Indicates Improving Conditions

Increasing interest rates since the end of August priced a large number of prospective buyers out of the market, dampening builder views of market conditions in November, according to the National Association of Home Builders' Eye on Housing. In addition, higher short-term interest rates meant increased costs for financing for builders and land developers, adding another hurdle for builders seeking to take advantage of a housing market low on resale inventory.

Builder confidence in the market for newly built single-family homes in November fell six points to 34 in November, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fourth consecutive monthly drop in builder confidence, as sentiment levels have declined 22 points since July and are at their lowest level since December 2022. Also of note, nearly the entire HMI data for November was collected before the latest Consumer Price Index was released and showed that inflation is moderating. ...

While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months. In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.

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