Builder-confidence index rises for the first time in five months as mortgage rates fall

Builders had also kept up sales incentives to boost interest, with 36% cutting home prices. 

Falling mortgage rates may provide a further boost to builder sentiment in the coming months. 

The U.S. economy shows early signs of weakening with inflation moderating, prompting the U.S. Federal Reserve to weigh interest rate cuts. 

A potential Fed rate cut pushed rates down in mid-December below 7% for the first time since August. 

The November figure exceeded what economists were forecasting on Wall Street, which was expecting sentiment to increase by just 2 points.

A year ago, the index stood at 31. 

Key details: Even though rates are falling, they’re still at or near 7%, which is expensive for home buyers. 

Builders were still cutting prices to boost sales. About 36% of builders cut prices, which is about the same as last month, the NAHB said. The average price cut was 6%. 

About 60% of builders were also using incentives — other than price cuts — to improve sales in December. 

The three gauges that underpin the overall builder-confidence index fell.

• Builders were mixed about current sales conditions. The gauge was unchanged.

• They were upbeat on future sales. The gauge rose by 6 points. 

• Builders were also seeing an increase in the traffic of prospective buyers. The gauge rose by 3 points. 

Big picture: Mortgage rates were down by around 50 basis points over the last month, the NAHB noted.

Further drops in mortgage rates, as a result of the Fed’s pivot in mid-December, could spur more home construction as well as sales. 

Lower rates mean lower borrowing costs for households looking to buy homes. They also entail lower costs for builders. 

What the NAHB said: “The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur home buyer demand in the coming months, with the … component measuring future sales expectations up six points in December,” Robert Dietz, chief economist at the NAHB, said in a statement. 

Market reaction: The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was below 4% on Monday morning.

The SPDR S&P Homebuilders ETF (XHB
XHB
) traded lower during the morning session, as well as big home builder stocks like D.R. Horton Inc (DHI
DHI,

), Toll Brothers (TOL
TOL,
-0.71%
), and Lennar (LEN
LEN,
-0.09%
). Stocks
DJIA

SPX
were up.