High costs and escalating mortgage rates might be currently dampening new home sales, but builders are forecasting a brighter housing market in the not-so-distant future. This prediction is according to a builder sentiment index by the National Association of Home Builders (NAHB) that was published on Tuesday. The index unveiled an increased level of confidence in builders about the upcoming six months, pushing the expectations index to its highest point since April 2022.
Despite the headwinds faced due to high-interest rates, inflated construction costs and a shortage of buildable lots, builders are hopeful of impending regulatory relief post-election, as indicated by NAHB Chairman Carl Harris. The construction and sales of new homes have been rather sluggish in recent times, compelled by high prices and towering mortgage rates that have driven potential buyers away from the market.
The forecast on home loan interest rates has further deteriorated recently, due to persistent inflation, suggesting the Federal Reserve's possible decision of maintaining higher interest rates than initially planned. The Federal Reserve's federal funds rate, impacting various borrowing costs, was kept elevated for nearly two years to curb spending and contain inflation. Although the Fed lessened the powerful interest rate from a two-decade high this fall, it remains higher than the pre-pandemic level.
Economists predict a less aggressive approach towards rate cuts by the Federal Reserve in the coming year. Consequently, the mortgage rates are predicted to hover over 6% in the year to come, states NAHB chief economist Robert Dietz. Old data from Freddie Mac reveals that the average rate for a secured 30-year mortgage last week sat at 6.6%, significantly above the 2%-3% range during the pandemic and 4%-5% before 2020.