Recent economic data leads the National Association of Home Builders (NAHB) to suggest housing conditions may improve in the coming months.

Of late, though, the NAHB/Wells Fargo Housing Market Index (HMI) for October fell for the fourth consecutive month and is now at its lowest level since December 2022.

“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” NAHB Chief Economist Robert Dietz said in prepared remarks.

Dietz said the 10-year Treasury rate moving back to the 4.5% range for the first time since late September will help bring mortgage rates close to or below 7.5%.

“Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December,” he said.

NAHB is forecasting approximately a 5% increase for single-family starts in 2024 as financial conditions ease.

The NAHB October index said that with mortgage rates running above 7% since mid-August, per Freddie Mac data, many builders continue to reduce home prices to boost sales.

In November, 36% of builders reported cutting home prices, the most since November 2022.

“The rise in interest rates since the end of August has dampened builder views of market conditions, as many prospective buyers were priced out of the market,” NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., said in prepared remarks.

“Moreover, higher short-term interest rates have increased the cost of financing for home builders and land developers, adding another headwind for housing supply in a market low on resale inventory.

“While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market.”