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Builder Sentiment Posts Third Consecutive Monthly Gain

Various industry factors are contributing to the recent boost in builder sentiment. Expectations that mortgage rates will continue to moderate in the coming months, the prospect of future rate cuts by the Federal Reserve later this year and a protracted lack of existing inventory are all contributing factors.

Rising to 48 in February, builder conference in the market for newly built single-family homes climbed 4 points. This is the highest level since August 2023, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

According to Eye On Housing, Buyer traffic improved at the start of 2024, as even small declines in interest rates produce a disproportionate positive response among likely home purchasers. And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.

With expectations of Fed rate cuts in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5% this year. But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages. And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year.

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