Is the housing market recovering? Here’s why home builders feel ‘cautious optimism.’

By Swapna Venugopal Ramaswamy

After every month in 2022 recorded a decline in builder confidence, could 2023 herald a change?

It’s beginning to look that way.

Builder confidence in the market for newly built single-family homes in February rose seven points to 42, marking a second consecutive monthly gain, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This is the strongest reading since September of last year.

High mortgage rates, elevated construction costs running well above the inflation rate and flagging consumer demand due to deteriorating affordability conditions had dragged builder sentiment down every month in 2022, according to the association.

But as interest rates began inching down in January, builders seem to be getting more confident.

With the largest monthly increase for builder sentiment since June 2013, the HMI indicates that incremental gains in affordability has the ability to bring more buyers to the market, said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama.

A construction worker reviews a sheet in front of a property under construction.

“The nation continues to face a sizeable housing shortage that can only be closed by building more affordable, attainable housing. However, the two monthly gains for the HMI at the start of 2023 match the cautious optimism noted by the large number of builders at the recent International Builders’ Show in Las Vegas, who reported a better start to the year than expected last fall,” she said.

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