US Builder Confidence Continues to Climb Higher in January

On Wednesday (1-17-23), the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed that builder sentiment in the market for newly built single-family homes increased 7 points to a reading of 44 in January. This marks the second consecutive monthly increase in the HMI.

All three of the major HMI indices posted gains in January. The HMI index charting current sales conditions increased 7 points to 48; the component measuring sales expectations in the next six months jumped 12 points to 57; and the component gauging traffic of prospective buyers rose 5 points to 29.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased 4 points to a reading of 55; the Midwest was unchanged at a reading of 34; the South increased 2 points to a reading of 41; and the West posted a 1-point increase to a reading of 32.

In its commentary on the January HMI, NAHB highlighted that mortgage rates have declined in excess of more than 110 basis points since late October, per Freddie Mac, lifting the future sales expectation component in the HMI into positive territory for the first time since August. Lower interest rates have improved housing affordability and brought some buyers back into the market. However, as homebuilding expands in 2024, the market will see growing supply-side challenges in the form of higher prices and/or shortages of lumber, lots, and labor.