The numbers: Home-builder confidence rose in February, with the industry expecting the Federal Reserve to cut interest rates later this year, which could boost demand for homes.
Expectations about a potential rate cut and a drop in mortgage rates in the coming months pushed the National Association of Home Builders’ monthly confidence index up 4 points to 48 in February, the trade group said on Thursday.
The index is up for the third month in a row and is at its highest level since August 2023.
The February figure exceeded what economists were forecasting on Wall Street, which was expecting sentiment to come in at 46.
A year ago, the index stood at 42.
Key details: Builders are pulling back on cuts to home prices and other sales incentives to boost demand.
About 25% of builders said they cut prices in February, down from 31% in January, the NAHB said. The average price cut was 6%.
A smaller share of builders were using incentives other than price cuts to improve sales in February.
The three gauges that underpin the overall builder-confidence index rose:
- Builders were upbeat about current sales conditions. The gauge rose 4 points.
- They were also optimistic about future sales. The gauge rose by 3 points.
- Builders were also seeing an increase in the traffic of prospective buyers. The gauge rose by 4 points.
Big picture: The U.S. housing market hit a speed bump in mid-February as the Fed signaled it is unlikely to cut interest rates in March and with mortgage rates edging up amid strong economic data on the employment and inflation fronts.
Builders — and the rest of the market — still expect the Fed to cut rates in May, which could bring down mortgage rates and make homeownership more affordable for buyers.
What the NAHB said: “Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” Alicia Huey, chair of the NAHB and a custom home builder and developer from Birmingham, Ala., said in a statement.
“And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year,” she added.
“With future expectations of Fed rate cuts in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5% this year,” Robert Dietz, chief economist at the NAHB, said in a statement.
Market reaction: The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was about 4.2% on Thursday morning.
The SPDR S&P Homebuilders exchange-traded fund
XHB
traded higher during the morning session, as did big home-builder stocks like D.R. Horton Inc
DHI,
-0.33%,
Toll Brothers
TOL,
+0.31%
and Lennar
LEN,
-0.59%.
Stocks overall
SPX
were up.
Read the full article here