The NAHB home builder survey for December fell another 2 pts to 31. The estimate was for a slight rise of 1 pt. For perspective, the covid bottom was in April 2020 when it hit 30. The housing crash low was 8. Both present conditions and future expectations were down while the Prospective Buyers Traffic component held at a very low 20.
To state the obvious again, housing is #1 when it comes to interest rate sensitivity with autos a close second and thus no surprise that this index has fallen every single month of 2022 for reasons that are obvious, “High mortgage rates, elevated construction costs running well above the inflation rate and flagging consumer demand due to deteriorating affordability conditions,” said the NAHB.
On what builders are doing to drive sales, “62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reduction. But with construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices.” To this, “only 35% of builders reduced home prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year.”
The only sign of light is the drop in mortgage rates by about 75 bps in the average 30 yr.
No surprises here but with all eyes in 2023 on how far home prices will fall in order to stimulate demand in order to offset high mortgage rates. And for those high mortgage rates, will the recent drop continue or not? I don’t see them going below 6% anytime soon because I don’t expect another notable drop in the US 10 yr yield.
NAHB
Prospective Buyers Traffic
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.