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HomeMarketMortgage Demand Declines but Builders Are Becoming More Confident

Mortgage Demand Declines but Builders Are Becoming More Confident

Mortgage rates remain below highs of more than 7% in late 2022.

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Mario Tama/Getty Images

The future for home sales brightened in February, according to a builders’ trade group. Yet new mortgage data show the path might be choppy.

Home builder sentiment improved in February, the National Association of Home Builders said Wednesday. This month’s reading, the second consecutive increase following a full year of declines, brought the index to its highest level since September 2022.

Of the index’s sub-components, expectations of sales in the next six months increased the most, to a reading of 48 from a reading of 37 in January. The two other components, measuring current sales conditions and buyer traffic, also gained.

 “While we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024,” National Association of Home Builders Chief Economist Robert Dietz said in a statement.

Such volatility appeared in the Mortgage Bankers Association’s most recent weekly measure of mortgage application volume, also released Wednesday. Volume overall last week declined a seasonally-adjusted 8% last week, according to the Mortgage Bankers Association.

Purchase applications dropped a seasonally-adjusted 5% from the week prior, while refinance applications fell 13%. Both the purchase index and overall index were at their lowest points since the start of the year, while refinance activity declined to late January levels.

The pullback came as the average fixed-rate 30-year mortgage rates measured by the association rose, to 6.39% from 6.18% one week earlier. Economic data likely contributed to the increase. The 10-year Treasury yield, with which mortgage rates often move, rose last week on the heels of January’s hotter-than-expected jobs report. 

“Mortgage rates increased across the board last week, pushed higher by market expectations that inflation will persist, thus requiring the Federal Reserve to keep monetary policy restrictive for a longer time,” Joel Kan, the trade group’s deputy chief economist, said in a statement. 

The rise in mortgage rates, to the highest level gauged by the trade group since the beginning of the year, adds to the cost of purchasing a home. Housing costs have been in the spotlight after a surge in home prices earlier in the pandemic followed by swiftly-rising mortgage rates at the end of 2022. All else equal, the 0.21 percentage point increase would add $44 to monthly payments on a $400,000 home compared to the week prior. 

“Potential buyers remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year’s levels and have significantly reduced buyers’ purchasing power,” Kan said. 

Even so, rates remain below 2022’s highs above 7%. While further gains could be in store—the 10-year Treasury yield as of Wednesday morning had increased 0.02% this week, to 3.763%—mortgage rates are expected to have already peaked, Dietz said. “Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle,” Dietz said. 

Builder incentives, while still common, have pulled back, the trade group found. In all, 57% of builders said they offered an incentive, down from 62% in December. At 31%, the share of builders who said they reduced home prices in February fell from 35% in December. The average price drop also thinned, to 6% from 8%. 

Investors will get their next look at how recent data, such as Tuesday’s Consumer Price Index reading, impacted on mortgage rates when
Freddie Mac
releases its weekly gauge of mortgage rates on Thursday. 

Write to Shaina Mishkin at


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