While a lagging inventory of existing homes and higher costs may present headwinds for the long-term housing market, it also appears to be buoying the confidence of U.S. home builders, according to new reports from the National Association of Home Builders (NAHB).
The (NAHB)/Wells Fargo Housing Market Index (HMI) shows that builder confidence in the market for newly built single-family homes rose one point to 45 in April, marking yet another month of optimism for the market since the start of the year.
“For the fourth straight month, builder confidence has increased due to a lack of resale inventory despite elevated interest rates,” said NAHB Chairman Alicia Huey, a custom homebuilder and developer from Birmingham, Alabama.
Huey indicated that the builders expressed that downward pressure on mortgage rates will “price-in” further demand for housing.
“Nonetheless, the industry continues to be plagued by building material issues, including lack of access to electrical transformer equipment,” she said.
Despite rising confidence in the market, rising builder sentiment shows signs of cooling. After snapping a 12-month cold streak in January with a four-point HMI gain, the index increased seven points in February before dipping slightly to a two-point growth in March.
Now, the index has risen modestly as NAHB officials have maintained previous statements that builders are “cautiously optimistic” that a limited supply of resale inventory will drive business in the new home sales market.
The HMI shows that the number of builders cutting home prices continues to decline, as 30% said they reduced costs in April, compared to 31% in March and February, 35% in December and 36% in November.
The average price reduction in April was 6%, the same as in February and March, but lower than in December (8%). The share of builders using incentives to bolster sales has increased from 57% in February to 58% in March to 59% in April, but it’s still lower than last December (62%).
“Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%,” said NAHB Chief Economist Robert Dietz. “More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023. And while AD&C loan conditions are tight, there is not significant evidence thus far that pressure on the regional bank system has made this lending environment for builders and land developers worse.”
The HMI index gauging current sales conditions in April rose two points to 51, and the component charting sales expectations in the next six months increased three points to 50, marking the first time these components returned to the 50-plus range since June 2022. The gauge measuring traffic of prospective buyers remained unchanged at 31, which is the first time the traffic component failed to improve in 2023.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose four points to 46, the Midwest edged up two points to 37, the South increased four points to 49 and the West moved four points higher to 38.
