U.S. homebuilder confidence rose in December, indicating easing interest rates may be bolstering sales conditions for builders who had struggled to attract prospective buyers amid the highest borrowing costs in two decades in previous months.

The National Association of Homebuilders/Wells Fargo Index showed builder confidence increased to 37 in December from 34 the month prior. A Reuters poll showed economists expected a reading of 36.

“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” said NAHB Chairman Alicia Huey.

Confidence had fallen in November to the lowest since December 2022. As rates rose, builders have been forced to cut prices since the summer in an effort to boost affordability.

The average rate on a 30-year fixed-rate mortgage reached a two-decade high in October at 7.9% before falling to 7.07% last week, according to the Mortgage Bankers Association, amid signals the Federal Reserve’s most aggressive rate-hike cycle since the 1980s is over and it may start cutting rates in 2024.

During the surge in rates over the last two years, homeowners who were locked into cheaper rates had a deterrent against selling. Prospective buyers turned to the new construction market during the first-half of this year, with the NAHB’s buyer traffic index reaching a year-high of 40 in July.

Amid a final surge in interest rates through October, buyer traffic waned into November and fell to 21 – the lowest reading since December 2022. Prospective buyer traffic picked up to 24 in December.

The share of builders slashing prices in December remained unchanged at 36%, tying last month for the highest portion since November 2022. Builders based in the Midwest and South saw the largest boost in sales conditions on a monthly basis, both increasing by 4 points.


© 2023 Thomson/Reuters. All rights reserved.

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