Optimism builds for 2025 amid hopes for regulatory changes and interest rate cuts
As 2024 comes to a close, homebuilders are cautiously optimistic that 2025 will bring relief to the housing market despite persistent challenges.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) held steady at 46 in December, reflecting mixed sentiment across the industry.
Builders expressed optimism about future sales expectations, which reached their highest level since April 2022, climbing three points to 66. However, current sales conditions remained unchanged at 48, while prospective buyer traffic dropped by one point to 31.
“While builders are expressing concerns that high interest rates, elevated construction costs and a lack of buildable lots continue to act as headwinds, they are also anticipating future regulatory relief in the aftermath of the election,” said NAHB chairman Carl Harris. “This is reflected in the fact that future sales expectations have increased to a nearly three-year high.”
In December, 31% of builders reduced home prices, consistent with November’s figures, with an average price reduction of 5%. Meanwhile, 60% of builders offered sales incentives, also unchanged from the prior month.
Selma Hepp, CoreLogic’s chief economist, said the anticipated Federal Reserve rate cut later this week could provide some relief by lowering construction lending costs, bolstering builder confidence as the new year begins.
"Homebuilders continue to gain cautious optimism that 2025 will be a better year for housing, although a lot remains uncertain on what the new administration will do,” she said. “And while higher construction costs are a worry due to potential deportations and tariffs, deregulation and lower corporate taxes could also offset some of the concerns. The anticipated Fed rate cut later this week will continue to bolster homebuilder confidence going into the New Year as the cost of construction lending ticks downward."
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NAHB chief economist Robert Dietz also forecast further rate cuts in 2025. However, inflation pressures are expected to keep mortgage rates above 6%.
“NAHB is forecasting additional interest rate cuts from the Federal Reserve in 2025, but with inflation pressures still present, we have reduced that forecast from 100 basis points to 75 basis points for the federal funds rate,” Dietz said in the report.
Across regions, the Northeast saw a two-point increase in its three-month moving average to 57, and the Midwest rose to 46. The South also gained two points, reaching 44, while the West declined by one point to 40.
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