Home builder sentiment was neither up nor down in December, remaining basically flat compared with November, at a score of 46 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
High home prices and mortgage rates offset renewed hope about a better regulatory business climate in 2025.
Still, builders expressed increased optimism for higher home sales in the months to come.
“While builders are expressing concerns that high interest rates, elevated construction costs and a lack of buildable lots continue to act as headwinds, they are also anticipating future regulatory relief in the aftermath of the election,” says Carl Harris, chairman of NAHB, in a statement. “This is reflected in the fact that future sales expectations have increased to a nearly three-year high.”
“NAHB is forecasting additional interest rate cuts from the Federal Reserve in 2025, but with inflation pressures still present, we have reduced that forecast from 100 basis points to 75 basis points for the federal funds rate,” adds Robert Dietz, chief economist for NAHB. “Concerns over inflation risks in 2025 will keep long-term interest rates, like mortgage rates, near current levels with mortgage rates remaining above 6 percent.”
The latest HMI survey also reveals that 31% of builders cut home prices in December, unchanged from November.
Meanwhile, the average price reduction was 5% in December, the same rate as in November. The use of sales incentives was 60% in December, also unchanged from November.
In a separate statement, Selma Hepp, chief economist for CoreLogic, says “homebuilders continue to gain cautious optimism that 2025 will be a better year for housing, although a lot remains uncertain on what the new administration will do.”
“And while higher construction costs are a worry due to potential deportations and tariffs, deregulation and lower corporate taxes could also offset some of the concerns,” Hepp says. “The anticipated Fed rate cut later this week will continue to bolster homebuilder confidence going into the New Year as the cost of construction lending ticks downward.”
Photo: Annie Gray