The Chicago Journal

Your Gateway to the Heartbeat of Chicago

Homebuilder Sentiment Rises Amid Falling Mortgage Rates

Image Commercially Licensed From: DepositPhotos

Positive Trend in Homebuilder Sentiment

Homebuilder sentiment in the U.S. experienced a notable improvement in January, marking a two-month upward trend. The National Association of Home Builders (NAHB) monthly index surged by 7 points, reaching 44. While still considered negative below 50, the index has shown a significant 10-point increase over the past two months.

Lower Mortgage Rates Boost Confidence and Affordability

Builders attribute the increased sentiment to a substantial decline in mortgage interest rates, dropping from around 8% in mid-October to the 6% range by December. Lower interest rates have improved housing affordability conditions, enticing buyers back into the market. This positive development is reflected in the NAHB chairman’s statement, emphasizing the impact of these lower rates on boosting confidence.

Challenges and Regional Variances

Despite the surge in sentiment, builders anticipate challenges in the form of building material cost and availability, as well as lot supply. The regional breakdown indicates that the Northeast saw the most significant increase in builder confidence, becoming the sole region in positive territory at 55. The Midwest reported a flat sentiment, while the South and West experienced slight increases.

Builders Adjust Strategies Amidst Lower Mortgage Rates

Strategies in Response to Falling Rates

As mortgage rates decline, builders are adjusting their strategies to boost sales. One notable approach is ongoing reductions in home prices. The report indicates that, in January, 31% of builders reported cutting home prices, a slight decrease from the previous two months. However, the typical price reduction remained at 6%, unchanged from December. Builders also consistently offer sales incentives, with 62% providing various incentives in January.

Cautionary Note from NAHB’s Chief Economist

Despite the current trend, Robert Dietz, NAHB’s chief economist, warns that as home building expands in 2024, the market may face challenges such as higher prices and shortages of lumber, lots, and labor. These factors could lead to an increase in home prices, impacting affordability.

Mortgage Applications Climb Amidst Lower Rates

Overall Increase in Mortgage Applications

As mortgage rates trend lower, applications for all types of homes for purchase and refinance have seen an uptick. The Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 12 reported a 10.4% increase in overall mortgage applications compared to the previous week.

Purchase Applications and Refinancing Trends

While applications to purchase a home increased by 9% on a seasonally adjusted basis from the previous week, they were down 20% from a year ago. In contrast, applications to refinance a mortgage showed more resilience, with an 11% increase from the previous week and a 10% higher rate than a year ago.

Cautious Optimism for Future Home Purchases

MBA vice president and deputy chief economist Joel Kan expressed cautious optimism, stating that if rates continue to ease, there is potential for an increase in home purchases in the coming months.


Homebuilder sentiment in the U.S. is on the rise, fueled by a two-month positive trend and lower mortgage rates. The decline in interest rates has boosted confidence and improved housing affordability, attracting buyers back into the market. Builders, however, remain cautious about potential challenges, including building material costs and regional variations in sentiment. Price reductions and sales incentives are also being employed to navigate the evolving market landscape. Concurrently, mortgage applications have increased, focusing on refinancing, signaling cautious optimism for future home purchases.

Share this article

Embracing the spirit and chronicles of the Second City