By The numbers: The National Association of Home Builders’ (NAHB) monthly confidence index rose 4 points to 35 in January, the trade group said on Wednesday.
Economists polled by The Wall Street Journal expected the index to fall to 30.
A drop in mortgage rates boosted buyer demand. The rise in confidence reverses 12 months of straight drops in builder sentiment.
A year ago, the index stood at 83.
Key details: All three gauges that underpin the overall builder-confidence index rose for the first time since December 2021.
The gauge that marks current sales conditions rose by 4 points.
The component that assesses sales expectations for the next six months rose by 2 points.
And the gauge that measures traffic of prospective buyers rose by 3 points.
Builder sentiment improved in the west by 1 point, the NAHB said, while the south remained unchanged. Sentiment continues to drop in the midwest and northeast.
Big picture: Last month, builders said they saw a light at the end of the tunnel.
A drop in mortgage rates is reigniting the real-estate sector. Mortgage demand surged 28% in early January, according to a separate report by the Mortgage Bankers’ Association.
What the NAHB said: “It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” Jerry Konter, chairman of the NAHB and a home builder and developer from Savannah, Ga., said in a statement.
“The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023,” he added.
“In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability,” Robert Dietz, chief economist at the NAHB, said in a statement.
“Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units,” Dietz added.
Market reaction: The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.390%
rose fell below 3.4% on Wednesday morning.
While the SPDR S&P Homebuilders ETF
XHB,
+1.60%
traded slightly lower during the morning session, big home builder stocks like D.R. Horton Inc
DHI,
+1.86%,
Toll Brothers
TOL,
+2.39%,
Lennar
LEN,
+2.32%,
and K.B. Home
KBH,
+3.24%
were mixed.
