According to a National Association of Homebuilders report, homebuilder confidence continues to rise, signaling a potential recovery in the housing market. Rafe Jadrosich, Senior Homebuilders Analyst at Bank of America Securities, joins Yahoo Finance Live to discuss the factors driving this optimism.

Jadrosich notes that as the spring selling season approaches, "new home demand has stayed relatively robust." He highlights that homebuilders have been able to sustain sales by offering incentives such as rate buy-downs and constructing smaller homes to address buyer affordability challenges.

The analyst signals that several tailwinds contribute to this positive outlook, including the influx of millennials entering the home-buying market, baby boomers "benefiting from the wealth effect," and a robust labor market. However, Jadrosich also acknowledges the impact of homeowners who are reluctant to sell due to high mortgage rates.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: From the latest read from the National Association of Homebuilders showing that the sector continuing to recover, which companies are best positioned in this environment? We're now joined by Rafe Jadrosich, who is the B of A Securities senior homebuilders analyst. First, I just want to get your takeaway from this latest reading as builder sentiment rises above that break-even point.

RAFE JADROSICH: Great. Thanks for having me. Yeah, and so what we've seen so far this year is like going into spring selling. New-home demand has stayed relatively robust. Despite that, as you mentioned, mortgage rates have stabilized, but they are still elevated, homebuilders have been able to sell homes by, first, using rate buy-downs, which is helping to drive demand.

But also, they've been building some smaller homes that help solve the affordability buyer-- the affordability challenges for buyers. So generally, a pretty strong start to the year going into spring selling for homebuilders.

SEANA SMITH: Is that a trend that you expect to continue, Rafe?

RAFE JADROSICH: Yeah, so we have a proprietary indicator for new-home sales. And generally, it's showing that we expect a recovery through 2024, despite, again, the higher rates. Where we're seeing tailwinds is we still have really strong demographics, and that's millennials entering the home market. Boomers are actually still the biggest buyer of homes, and they've been benefiting from a wealth effect.

And then you're also generally seeing just favorable job market and a strong economy. So all of that is helping offset the higher rates and tight affordability.

SEANA SMITH: Rafe, when we talk about the fact that new homes accounting for more of the overall homes sold here, are you expecting that to happen again? And I guess what is that percentage that you're expecting to see of new homes accounting for overall home sales?

RAFE JADROSICH: So if you look at active listings in the US, historically, new homes are about 10% to 15% of the total active listings. Right now, that's up to 30% of the active listings on the market that are new home. And that goes back to a point that you made earlier. There's just very few homes that are in the resale market that are being listed.

And we expect that to continue in a similar pace. Right now, 80% of people that have a mortgage on their house are below 5%, which is well below the 6 and 3/4 rate that's out there right now. So the disincentive for people to sell their house is very high. So we would expect the majority of listings to-- or at least, in the 30% range of listings to remain in the new-home side.