Builder confidence in the market for newly built single-family homes rose five points this month to 50, according to the latest Housing Market Index (HMI) report from the National Association of Home Builders (NAHB) and Wells Fargo (NYSE:WFC).
This is the fifth straight month of increased builder confidence and the first time that sentiment levels reached the midpoint mark of 50 since July 2022.
All three major HMI indices posted gains this month: The index gauging current sales conditions rose five points to 56, the component charting sales expectations in the next six months increased seven points to 57 and the gauge measuring traffic of prospective buyers increased two points to 33.
Looking at the three-month moving averages for regional HMI scores, the Midwest inched up two points to 39, the South increased three points to 52 and the West moved three points higher to 41. The Northeast remained unchanged at 45.
The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in Feb. and March, and 36% last November. The average price reduction remained at 6%, unchanged for the past four months, while 54% of builders offered some type of incentive to bolster sales in May, down from 59% in April and 62% last December.
“New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction. These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.”
“Lack of existing inventory continues to drive buyers to new construction,” added NAHB Chief Economist Robert Dietz. “In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”