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Home builder confidence rises for first time in a year as housing market hits 'a turning point'

Confidence among U.S. single-family home builders rose in January for the first time in a year, ending a 12-month stretch of declines and potentially signaling a turning point in the housing market.

The National Association of Home Builders/Wells Fargo's gauge of builder sentiment increased 4 points this month to 35, figures released Wednesday showed. Still, any figure below 50 is considered negative.

"Probably past the worst, but a sustained improvement will have to wait," Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote following the release.

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Sentiment had fallen every month in 2022, representing the longest span since the mid-1980s. The rapid rise in mortgage rates last year — a result of the Federal Reserve’s interest rate policy — crushed buyer demand for homes.

The latest survey shows that builders continue to use incentives like price reductions to boost sales, but NAHB Chairman Jerry Konter predicted that the lows for housing permits and starts are likely near and "a rebound for home building could be underway later in 2023.”

PHOENIX, AZ - MARCH 05:  Workers pour concrete for a driveway of a new home at the Pulte Homes Fireside at Norterra-Skyline housing development on March 5, 2013 in Phoenix, Arizona. In 2008, Phoenix, Arizona was at the forefront of the U.S. housing crisis with home prices falling 55 percent between 2005 and 2011 leaving many developers to abandon development projects. Phoenix is now undergoing a housing boom as sale prices have surged 22.9 percent, the highest price increase in the nation, and homebuilders are scrambling to buy up land.  (Photo by Justin Sullivan/Getty Images)
(Photo by Justin Sullivan/Getty Images)

“While NAHB is forecasting a decline for single-family starts this year compared to 2022, it appears a turning point for housing lies ahead,” said NAHB Chief Economist Robert Dietz, writing in the press release.

“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. Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units," Dietz added.

The group’s measure of present sales increased and the gauge of prospective buyer traffic increased, too, posting gains for the first time since December 2021.

The outlook for sales expectations for the next six months also looked less bleak as mortgage rates hit their lowest point since September.

Regionally, builder sentiment rose in the West, while in the South it held steady, and in the Northeast and Midwest sentiment ticked down.

"The scope for further improvements in homebuilder sentiment is limited, however, given the scale of the downward adjustment in prices still needed before the market fully adjusts to the collapse in demand since the end of 2021," Clancy added.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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