Good News for Homebuyers: Lower Mortgage Rates and Homebuilder Confidence
As we welcome the New Year, mortgage rates have finally begun to drop. This is exciting news for prospective homebuyers as rates hit their lowest level since May 2023. Lower mortgage rates give borrowers more purchasing power. This will allow more homebuyers the opportunity to buy their dream home. These lower rates combined with a rebound in homebuilder confidence and a surge in new residential construction activity are setting the stage for 2024 to be a more positive year for homebuying.
Homebuilder confidence on the rise:
Gauging the confidence of homebuilders is an important factor in understanding the direction of the housing market. After four consecutive monthly declines, homebuilder confidence is finally showing signs of improvement.
The Housing Market Index is an economic tool created by the National Association of Home Builders (NAHB) to understand the state of the housing market. It’s made up of three components: Present sales, expected sales for the next six months, and the traffic of prospective buyers. According to the most recent NAHB report, there have been recent improvements in both the traffic of prospective buyers component as well as the expected sales component. These changes suggest that market conditions are improving and that homebuilders are growing more confident in the state of the housing market.
Surge in new residential construction:
Even before the most recent drop in mortgage rates, single-family and multi-family housing construction was already on the rise. In November, developers broke ground on new construction at the fastest pace in six months. The latest data from the Census Bureau revealed an unexpected surge in housing starts, reaching 1.56 million, a faster rate than economists expected. This is an increase of 42% compared to the previous year.
Promising indicators for future construction:
In addition to the surge in housing starts, single-family permits, which serve as an indicator of future construction, increased by 0.7%. The two states with the highest levels of new construction activity on a year-to-date basis are Texas and Florida, which are currently generating over 15,000 permits.
Notably, Houston and Dallas stand out, with both cities on track to produce nearly double the number of single-family units compared to third-place Phoenix.
Consumer confidence:
According to NAHB, these changes in the housing market are correlating with a rise in consumer confidence. In December, the Consumer Confidence Index rose to its highest level since August. The primary contributors to this increase were decreased fears of a recession, the trend of slowing inflation, and the expectation that interest rates will continue to fall.
Things to consider as you continue to navigate the housing market:
There are many loans and programs that are available for homebuyers regardless of market conditions. The housing market changes constantly, so continuing to keep up-to-date with information such as interest rates and new programs can help you decide when the right time for you to buy might be. Your Loan Officer can answer your questions about the market and help you find your dream home.
The current trends in homebuilder confidence and new residential construction activity present a promising outlook for prospective homebuyers. With lower mortgage rates and increased construction, buyers will have more opportunities to find their dream homes.
However, it is important to monitor market conditions and potential challenges that may arise in the future. Going forward, the housing market appears to be moving in a positive direction, offering hope for both buyers and builders alike.