Home Builders Are Confident in 2023

 CNN reported that January has seen an improvement in home builder confidence. In fact, it was the first uptick since it has been falling for the past year.

Construction prospects are improving and this is good news for homebuyers in the housing market. For the past several years potential buyers have been facing a battle due to low inventory. According to the National Association of Home Builders/Wells Fargo Housing Market Index, the current sales, buyer traffic, and the conditions for the sale of new construction homes are improving.

Even with spikes in construction costs, shortage in building materials, and harsh affordability conditions, builders are starting to look up. The National Association of Home Builders/Wells Fargo Housing Market Index, which * is meant to gauge market conditions reported that builders’ confidence went up from December to January. December reported the lowest since 2012.

“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,” Konter said. “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.”

“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,” he said. “Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units.”

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The Market Is Seeing a Decline in Home Prices

 For two years we have seen a boom in the housing market when it comes to price appreciation. We have finally seen the peak, as the prices are now declining.

Prices will keep declining in the near future but will not drop as far as they did during the recession. From the peak in 2006 all the way through to 2012 there was a 27% decrease in home prices.

“It was different in 2008, 2009 because that drop in prices was because of a push from sellers,” said Jeff Tucker, senior economist at Zillow. “Because of foreclosures and short sales there were a lot of extremely motivated sellers who were willing to take a loss on their homes.”

“I would be surprised to see prices anywhere drop below where they were in 2019,” said Tucker. “There was some overheating in the housing market in 2021 through this spring that pushed prices higher than what the fundamentals would support. Now they are coming down.”

With the soaring mortgage rates along with elevated home prices and slow increases in wages, home buying is not in most potential buyers’ future. According to Goldman Sachs we should see a decline of around 5% to 10% from the peak, Wells Fargo predicts a 5.5% decrease. This means the median home price will fall to $364,000.

“The primary driver behind the housing market correction thus far has been sharply higher mortgage rates,” the Wells Fargo researchers wrote. “If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly just as cooling inflation pressures boost real income growth. A modest improvement in sales activity should then follow, which will reignite home price appreciation heading into 2024.”

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