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Economic Report: U.S. builder confidence bounces back, breaking a 12-month losing streak

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.

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