Analysts Say This Is a Turning Point for the Housing Market

By: Krystal Etienne · January 23, 2023 · Reading Time: 3 minutes

Homebuilder Confidence

Last week, the NAHB/Wells Fargo (WFC) Housing Market Index rose for the first time since December 2021. The survey tracks builders of single-family homes, analyzing both sales and buyer activity on a scale of 0 to 100. January’s reading checked in at 35.

While this month’s number is up four points from December of last year, it’s still 48 points lower on an annual basis. This speaks to how extensively the housing market diminished throughout 2022, as the Fed raised rates in a bid to cool inflation, making mortgages more expensive and harming demand.

Inflation’s Easing Impact

Despite their fast rise throughout last year, mortgage rates fell last week. That’s because inflation data shows price increases are leveling off, meaning the Federal Reserve is likely to slow its rate-hike campaign in the coming months. That trend is one of the main reasons homebuilders have become more confident about future conditions.

In both November and December, mortgage rates declined. Earlier this month, the December CPI was printed, showing prices fell 0.1% on a monthly basis as well. Nevertheless, analysts predict mortgage rates will continue to fluctuate until the central bank makes it clear rate hikes have reached their conclusion.

Change Gonna Come

In a statement, NAHB chief economist Robert Dietz predicted housing starts will soon uptick, after falling to their lowest rate in two years in December. Housing starts refer to the number of new homes beginning construction, a category that’s plummeted as rates have risen.

That lack of new inventory has helped support higher prices, even while mortgage costs have risen. While fewer people are actively shopping for properties, stock is historically low, upending the traditional supply and demand paradigm. But there’s hope on that front as well, per Redfin (RDFN). Last month, the real estate company projected home prices in 2023 will fall from the year before. That hasn’t happened since 2012.

Amid lower mortgage rates, and with construction set to ramp up, it’s clear why some economists say the housing market is at a turning point. Homeowners and prospective buyers alike will hope it continues to turn in the right direction.

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