Builder confidence transitioned into positive territory for the first time in 11 months, according to the latest National Association of Home Builders (NAHB) / Wells Fargo (NYSE:WFC) Housing Market Index (HMI).
The HMI for the market for newly built single-family homes rose five points in June to 55, marking both the sixth straight month of increased builder confidence and the first time since last July when sentiment levels surpassed the midpoint of 50.
The June HMI survey also found 25% of builders reduced home prices to bolster sales in June, down from 27% in May and 30% in April, and the average price reduction was 7% in June, below the 8% rate in December 2022. Also, 56% of builders offered incentives to buyers in June, slightly more than in May (54%), but fewer than in December 2022 (62%).
All three major HMI indices posted gains in June: The HMI index gauging current sales conditions rose five points to 61, the component charting sales expectations in the next six months increased six points to 62 and the gauge measuring traffic of prospective buyers increased four points to 37.
Looking at the three-month moving averages for 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.
“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” said 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.”
Dietz further noted the Federal Reserve and Washington policymakers must factor into consideration how the state of home building is critical for the inflation outlook and the future of monetary policy.
“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,” he said. “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.”
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