The latest result from the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) shows a positive upturn.
Builder confidence in the market rose by 5 points in June, reaching 55. This is the sixth month in a row of confidence increases and the first time the index has reached 50 since July 2022. The reasons cited for this include increased demand and improving supply chain efficiency. The ongoing inventory crisis, a reason other real estate professionals might fret, also gives builders reason for confidence.
As we’ve reported in our Broker Confidence Index, broker’s view of the market remains uncertain, owing to mortgage rates and the recent Congressional stand-off over the debt ceiling. It remains to be seen if increased builder confidence can bolster broker’s.
Key details:
- 25% of builders reduced home prices to bolster sales in June. The share was 27% in May and 30% in April. It has declined steadily since peaking at 36% in November 2022.
- The average price reduction was 7% in June, below the 8% rate in December 2022.
- 56% of builders offered incentives to buyers in June, slightly more than in May (54%), but fewer than in December 2022 (62%).
- Per the HMI, current sales conditions rose five points to 61, sales expectations in the next six months increased six points to 62 and traffic of prospective buyers increased four points to 37.
- Across regional HMI scores: the Northeast edged up two points to 47, the Midwest increased four points to 43, the South moved three points higher to 55 and the West posted a five-point gain to 46.
Takeaways:
“Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains,” says NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “However, access for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows.”
“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” says NAHB Chief Economist Robert Dietz. “This month marks the first time in a year that both the current and future sales components of the HMI have exceeded 60, as some buyers adjust to a new normal in terms of interest rates. The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”
“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily and single-family,” Dietz adds. “By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”
To read the full report, click here.
