December 17, 2024

This series was unchanged in December at 46 after  having risen 3 points in November and 2 points in both September and October.  The recent gains seem to reflect hope that the Trump administration will cut a lot of the red tape that has been impeding the housing industry.  Keep in mind that the breakeven point for this series is 50 so at 46 it is clear that builders are still being cautious  They are bothered by mortgage rates that at 6.8% are still relatively high.  They are also bothered by the inability to hire as many workers as they would like, by the relative scarcity of lots on which to build, and onerous local regulations.

NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas said, “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.  This is reflected in the fact that future sales expectations have increased to a nearly three-year high.”

Chief Economist Robert Dietz said, “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.  Concerns over inflation risks in 2025 will keep long-term interest rates, like mortgage rates, near current levels with mortgage rates remaining above 6%.””

Traffic through the model homes fell 0.1 point in December to 31 after having risen 3 points in November and 2 points in both September and October.   Traffic through model homes remains low as still high mortgage rates are reducing the number of interested buyers.

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The homebuilders expectations index rose 3 points in December to 66 after having  jumped 7 points in November and 4 points in both October and November.  This is the highest level in 2 years and reflects a hope that the Trump administration will alleviate much of the regulatory environment that has been impeding growth in the housing industry.

Mortgage rates are now hovering at the 6.8% mark which is relatively expensive. Both potential home buyers and builders expect them to decline further as 2025 progresses given the continuing slowdown in inflation and likely rate reductions by the Federal Reserve.

Home prices rose sharply for almost two years from mid-2020 through the spring of last year.  They then fell for eight consecutive months.  An acute shortage of homes available for sale has caused prices to climb again in recent months  Builders lack of enthusiasm is likely to translate into only a small increase in housing starts in the months ahead.

If home prices are relatively steady, the economy continues to crank out jobs, wages rise, and mortgage rates gradually decline to the 5.8% mark, housing affordability should increase considerably by the end of next year.

We expect GDP growth to be 2.5% in the fourth quarter and 2.9% growth in 2025.

Stephen Slifer

NumberNomics

Charleston, SC