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A Boost in Homebuilder Sentiment as Mortgage Rates Trend Down

March 8, 2024 | 4 minute read

The housing market has been turbulent over the last few years, to say the least. Homebuilders were finally ramping up construction to keep up with surging demand. Then, mortgage rates shot into the stratosphere. As a result, many homebuilders pumped the brakes, which made the shortage worse.

With new homes hard to come by, you may think you’re doomed to buy a fixer-upper. But not so fast. Recent mortgage rate trends have provided a much-needed boost to homebuilder sentiment, which can be a positive sign if you’re in the market for a new home. Here’s what to know.

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What Is Homebuilder Sentiment?

When people talk about homebuilder sentiment, they’re referring to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The HMI measures the sentiment of NAHB members and provides a useful glimpse into the state of the housing sector. 

The HMI is a complex calculation that includes data from three different indexes to measure builder confidence in the market. All you need to know is that the index ranges from zero to 100. A score of 50 or higher is positive; anything below that is cause for concern.

In November 2023, builder confidence was at 34 on the HMI scale. For context, the record-low score was eight, which is where the HMI ended up in January 2009 after the housing market crash.

However, homebuilders seem to have renewed optimism in 2024, as the HMI rose to 44 in January. While overall sentiment is still below the positive threshold of 50, the shift is a good sign that the market is trending in a good direction. Hopefully, the HMI will continue to rise as mortgage rates trend down. 

What Are the Current Mortgage Rate Trends?

Current mortgage rate trends indicate a slow but steady decline. As of week four of January 2024, the national average for 30-year mortgage rates has settled at 6.69%.

Mortgage rates have a major impact on a home’s affordability, as lower rates translate to lower monthly payments. Depending on your loan amount, a mortgage rate drop of one percentage point could save you a couple hundred dollars per month on your payment.

Mortgage rates are currently trending down in increments of about one-tenth of a percent. While that won’t make a huge difference in your monthly payment, it’s nonetheless a good sign for buyers everywhere.

Interest rates are still much higher than they were only a couple of years ago, and homebuilder sentiment is still below the midway point on the HMI. The question is, should you buy now, or should you continue to hold steady?

Let’s explore what happens when mortgage rates trend down and what it means for your home-buying dreams.

What Happens When Mortgage Rates Trend Down?

From the outside, the housing market can appear volatile and unpredictable. Even housing market experts sometimes have difficulty predicting what will happen next. That said, there are a few well-established trends we can look to for guidance.

First, buyers tend to be more active when mortgage rates trend down. That means you’ll face more competition when searching for a home.

Homebuilder sentiment is also trending up, which is a positive thing. That said, most homebuilders remain conservative with their construction efforts, meaning the supply problems that began to manifest a few years ago will likely impact your home search.

When supply is low and demand spikes, prices go up. While mortgage rates aren’t as low as you’d like them to be, making your move now might be a great way of beating the next rush of purchases.

Waiting for the rates to drop a bit more may boost your buying power a bit, but if home values surge again, you’ll lose out on opportunities for savings.

Should I Buy Now While Mortgage Rates Trend Down?

Every homebuyer’s situation is unique, but starting your home search now might be a wise move, all things considered.

Remember, you’re marrying the house and dating the mortgage rate. You’ll always be able to refinance later when rates fall further. In the meantime, you’ll face less competition and may be able to save thousands on your new home.

With that in mind, it’s vital that you partner with a team of experienced professionals who can guide you on your journey. Find a great real estate agent, mortgage partner, and title company to help you make an informed decision. Before you know it, you’ll be accepting the keys to your dream home.

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