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Confidence in the housing market is still fairly low among U.S. home builders, but it’s on the rise. According to the most recent National Association of Home Builders/Wells Fargo Housing Market Index, released January 18, builder confidence jumped by four points to 35 in January.

The index measures home-builder sentiment via monthly surveys that ask builders to rate the new-construction housing market based on current sales, sales expectations for the near future and the volume of buyers. Scores above 50 indicate that more builders view conditions as positive, rather than negative.

‘A rebound could be underway’

Last year saw the housing market go through a stark shift in home-builder sentiment, coinciding with rising interest rates, high materials costs and some declining demand. These resulted in Housing Market Index lows not seen since 2012.

According to the NAHB, the current uptick is largely due to a slight drop in mortgage rates. Still, these were the first monthly gains to occur across the three aspects of the Housing Market Index since December 2021, and NAHB chairman Jerry Konter is optimistic for what’s to come. “The rise in builder sentiment means that a rebound for home building could be underway later in 2023,” Konter said in a statement.

“The housing market cooled quickly in 2022 as affordability issues were further compounded by soaring mortgage rates and ongoing supply disruptions,” said Greg McBride, CFA, Bankrate’s Chief Financial Analyst. “As a result, it’s no surprise that we saw 12 consecutive months of declining builder sentiment. A pullback in mortgage rates over the past few weeks has broken that string.”

This pullback in rates, if it continues, could signal a more robust market in 2023. “In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability,” said Robert Dietz, NAHB’s Chief Economist. “It appears a turning point for housing lies ahead.”