Builder confidence decreased every month during 2022, according to the National Association of Home Builders/Wells Fargo Housing Market Index for December.

For December, the Housing Market index is 31, a two-point decrease from November. The 31 is an average of the three components of the index:

Builders confidence in current sales – 36
Builders confidence in sales for the next six months – 35
Builders confidence in traffic from prospective buyers – 20

Housing Market in Decline Through 2023

“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga. “Our latest survey shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions.

But price cuts cut into builder profit.

“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” Konter added. “Only 35% of builders reduced homes prices in December, edging down from 36% in November.”

Konter said that the average price reduction was 8%, up from 5% or 6% earlier in the year.

Has the Builder Confidence Reached Its Low Point?

“The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” said NAHB Chief Economist Robert Dietz. “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations.”

Recovery in 2023, 2024?

The current Housing Market Index of 31 is the lowest its been since mid-2012 (not counting the index recorded at the onset of the pandemic). What factors will contribute to a recovery?

Dietz said that a recovery is possible by 2024 because of two factors:

The nationwide housing deficit, which is 1.5 million units.

Mortgage rates are anticipated to decline.

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This article, “Housing Market Rebound Not Expected Until 2024” was first published on Small Business Trends