Builder Optimism, Home Inventory, and Purchase & Refi Demand Tick Up as Rates Trend Lower

Blog posted On January 19, 2023

What a difference a year makes. A year ago, mortgage rates were climbing one of the steepest hikes in history. The only rival being the Everest of the late 70s and early 80s. What was once a roaring market driven by pandemic-level rates quickly became a ghost town of sinking refinance demand, destroyed builder confidence, and plummeting interest in purchasing a home. A cloud of apprehension lingered over the market for the better part of a year. Twelve months later, and the sun is finally starting to break through.

Mortgage Rates Have Likely Peaked

Though last year we witnessed the great mortgage rate climb of 2022, we’ve seemingly reached the peak. In October, rates were brushing the highest levels in decades. However, they seemed to step off the ledge shortly after. Since then, they’ve been consistently cooling off thanks to lower inflation levels and subsequently smaller rate hikes from the Federal Reserve.

While it’s not ‘all downhill from here,’ we should see rates to continue their general trend lower throughout the year. As always, this will depend on what the economy does and how the numbers come in on important market-moving reports.

Home Builders Are Feeling More Optimistic About 2023

As rates surged higher in 2022, builder confidence crumbled. Higher rates not only mean higher builder costs, but also mean fewer interested buyers. In January 2022, home builder confidence started at a level of 83 on the National Association of Home Builders’ (NAHB) housing market sentiment index. By July, that number had dipped to 55 and by December, builder confidence struck a two-and-a-half-year low of 31. After the encouraging inflation news in December of 2022 and January of 2023, builders started to regain their hope for the new year reflected by a three-point increase on the NAHB index. 

Furthermore, the component of the index measuring current sales rose 4 points to a level of 40 while sales expectations for the next 6 months rose 2 points and prospective buyer traffic rose 3 points.

“The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023,” said Jerry Konter, the NAHB Chairman.

Home Inventory Has Likely Hit Its Low Point

The supply of homes for sale reached some dangerously low levels in 2020-2022. The effect of low inventory and high demand drove up home prices drastically and gave buyers an unfortunately low number of choices. One positive effect of last year’s higher rates is the time it gave home inventory to heal and recover. As demand dipped, housing supply was able to regain its feet. Going forward in 2023, buyers should see more options become available. Additionally, you might realize you have more power this year. Recently, home sellers have been offering confessions left and right. Buyers are reaping the benefits of reduced closing costs, mortgage payment buydowns, and more.

Mortgage Demand is On the Rise Once Again

During the week ending 1/13, mortgage application submissions saw a shocking surge.  Overall, submissions increase 27.9% -- which is a hugely rare gain. Arguably even more shocking was that refinance applications led the way, rising 32% week-over-week. When refinances see a surge this huge, it typically means that mortgage rates have been doing really well. Purchase application submissions didn’t disappoint either, climbing 25% week-over-week.

“Mortgage rates are now at their lowest level since September 2022, and about a percentage point below the peak mortgage rate last fall,” notes Mike Fratantoni, senior vice president and chief economist of the Mortgage Banker’s Association. “As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time home buyers.”

Curious about purchasing or refinancing now? Jump on in, the water’s fine! Get started with a quick and easy preapproval by contacting us or clicking “Get Started” above.

Sources: FRED, HousingWire, HousingWire