After a strong start to the spring selling season, homebuilder sentiment flattened in April as buyers hesitate to step into the market due to continued unrest in the mortgage market and other affordability challenges.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) registered at 51 in April, the same reading seen in March. Despite breaking the four-month streak of increases, the index still remains above the breakeven point of 50.
2024 saw a very strong start when it comes to homebuilder sentiment, with a seven-point jump in January, a four-point rise in February and a three-point rise in March.
“April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed,” said NAHB Chief Economist Robert Dietz. “With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year, and that mortgage rates will moderate in the second half of 2024.”
Similar to last month, as builder’s positive outlook on the current market and future grows, they’re beginning to decrease the discounts they’ve been offering to combat economic challenges. Only 22% of builders cut home prices this month, down from 24% in March and from 36% in December 2023. In addition, the share of builders offering some form of incentive in March was 57%, down from 60% in March.
Despite this decrease in price cuts and incentives, the average price reduction in March still held steady at 6% for the tenth straight month.
Two of the major HMI indices posted slight gains in April, while one saw a small drop. The HMI index charting current sales conditions increased one point to 57, and the component measuring sales expectations in the next six months rose one point to 35. Meanwhile, the component gauging traffic of prospective buyers fell two points to 60.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased four points to 63, the Midwest gained five points to 46, the South rose one point to 51 and the West registered a four-point gain to 47.
“With many frustrated buyers back on the fence waiting for interest rates to fall, policymakers can help ease affordability challenges by reducing inefficient regulatory rules that raise housing costs and limit supply,” concluded NAHB Chairman Carl Harris.
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