2024 will be a 'pivot year' for the housing market: NAHB CEO

The US housing market has hit a turning point as a drop in mortgage rates draws more prospective buyers from the sidelines, according to a trade group representing builders.

"We’re heading toward a housing renaissance," National Association of Home Builders CEO Jim Tobin told Yahoo Finance Live (video above).

Tobin's comments came after this week mortgage rates posted their biggest drop since May last year. The average rate for a 30-year loan slid to 6.60% from a peak of nearly 8% in October.

Read more: Mortgage rates below 7% — is this a good time to buy a house?

"2024 is shaping up to be that pivot year where we leave the doldrums of the post-COVID slowdown, and we really pivot into the next five or six years in the housing market where we're going to see some great growth. We're going to see homebuilders meet that pent-up demand for single-family and multifamily housing," Tobin added.

This is good news for potential buyers who have been sitting on the sidelines due to the lack of inventory and higher mortgage rates. Housing sales activity sank to a 30-year low last year as homeowners remained reluctant to sell the homes they’d financed at lower rates.

Sales of previously owned homes retreated by 1% in December from the month before to an annualized rate of 3.78 million, the National Association of Realtors said Friday. December’s home sales slumped by 6% compared to last year.

"The December figure is likely the low point in this cycle, and expect an uptick in the coming months," NAR chief economist Lawrence Yun said on a conference call.

Yun noted that lockbox activity was up 5% in December compared to last year — signaling more buyer appetite.

Lenders are seeing a rise in interest, too. The volume of mortgage applications rose by 10% from the prior week, according to data gathered by the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Jan. 12.

Read more: How to buy a house: 13 steps to getting the keys to your new home

While December's atypically warm and dry weather didn't help builders break ground on more new housing units than the month prior, permits for future development rose, posing new signs of life in the market. Authorized residential permits — an indicator of future activity — climbed 1.9% to a rate of 1.495 million units, up from November's revised rate of 1.467 million units.

"Looking ahead to this year, we don’t think mortgage rates will fall enough to unwind mortgage rate 'lock-in' and cause a meaningful recovery in supply," wrote Thomas Ryan, property economist at Capital Economics. "Against that backdrop, demand will continue to get diverted to new builds, which will also encourage stronger construction activity."

Such dynamics have fueled an increase in builders’ confidence. The National Association of Home Builders/Wells Fargo Housing Market Index rose 7 points to 44 in January, marking a second consecutive monthly gain.

"People are starting to get out of their homes and get into model homes to look at housing, maybe setting themselves up for a spring buying season [and] readying themselves for those lower rates," Tobin said.

One of the biggest advantages for homebuilders has been the lack of supply in the resale market — which sparked more demand for a new home. Total inventory for previously owned homes reached 1 million units at the end of December, and according to NAR’s metrics, that's considered a "tight market."

Builders have also been rolling out aggressive incentives like mortgage rate buydowns — where the builder fronts a portion of the costs — to aid buyers.

"Just over the last couple of months, we're down over a full percentage point in mortgage rates and when you couple that with builder incentives, people are actually getting [a rate] below 6%, whether it's [through] mortgage rate buy downs or price cuts," Tobin said, adding that "in six months we're going to see mortgage rates even lower than we are now."

Fannie Mae revised its forecast and is now expecting the 30-year fixed mortgage rate to average at 6.4%, down from the previous outlook of 7.0%, in the first quarter of this year.

That still may not be low enough for some buyers, though.

"The world is getting ready to realize that we're no longer going to go back to those 3% to 4% mortgage rates. And there does need to be a generational shift here that mortgage rates in the 5% for the long term are still really good low rates for a long-term investment like your home," Tobin said.

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

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