Home Builder Sentiment Is Rising for the First Time in Over a Year—Here’s Why

After 12 consecutive monthly declines, builder sentiment rose for the first time in January thanks to a slight drop in mortgage interest rates. The National Association of Homebuilders’ (NAHB) national Housing Market Index (HMI) rose from December’s low of 31 to 35 last week, and while there’s still plenty of room for improvement, the recent gain sets the tone for a more optimistic year of home building in 2023.

Rates on a 30-year fixed mortgage fell from 7% to 6.61% in November as a market correction led to price drops in some overheated markets. By Jan. 5, 2023, rates had tapered off even further, reaching a more affordable 6.48%, which caused a small but promising uptick in homebuyer demand.

The NAHB is predicting that with increased homebuilder sentiment following the news of lower mortgage interest rates, we’re likely to see an increase in permits and new builds for single-family homes.

But it’s important to put things in perspective. Homebuilder sentiment grew a healthy four points month-over-month to 35. While 35 is a better score than last month, generally, homebuilders are considered to be optimistic when the number is at 50 or higher.

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