Builders remained cautiously hopeful in April, as limited resale inventory aided demand in the new home market, despite the industry’s ongoing struggles with building materials.
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, builder confidence in the market for newly built single-family homes increased one point in April to 45 (HMI).
“Builder confidence has increased for the fourth consecutive month due to a lack of resale inventory despite elevated interest rates,” said NAHB Chairman Alicia Huey, a custom house builder and developer from Birmingham, Ala. “Builders believe that further reductions in mortgage rates to below 6% will price in additional demand for housing.” Despite this, the business is still hampered by building material challenges, such as a lack of access to electrical transformer equipment.”
“At the moment, one-third of housing inventory is new construction, compared to historical norms of slightly more than 10%,” NAHB Chief Economist Robert Dietz stated. “More buyers looking for new homes, as well as the use of sales incentives, have boosted new home sales since the beginning of 2023.” While AD&C loan terms are tight, there is no evidence that pressure on the regional bank system has exacerbated the lending climate for builders and land developers.”
According to the HMI poll, the share of builders lowering home prices continues to decline, with 30% lowering prices in April, compared to 31% in March and February, 35% in December, and 36% in November. In April, the average price decrease was 6%, the same as in February and March but lower than in December (8%). The percentage of builders employing incentives to boost sales has risen from 57% in February to 58% in March to 59% in April, but it remains lower than it was in December last year (62%).
The NAHB/Wells Fargo HMI, derived from a monthly poll conducted by NAHB for more than 35 years, rates builder confidence and perceptions of current single-family home sales and sales projections for the next six months as “good,” “fair,” or “poor.” Builders are also asked to rank prospective buyer traffic as “high to very high,” “average,” or “low to very low” in the study. The scores for each component are then used to produce a seasonally adjusted index, with any value more than 50 indicating that more builders consider conditions to be favorable rather than poor.
In April, the HMI index measuring current sales conditions grew by two points to 51, while the component measuring sales forecasts over the next six months increased by three points to 50. This is the first time that both of these components have returned to the 50+ area since June 2022. The gauge measuring possible buyer traffic stayed at 31. This is the first time in 2023 that the traffic component has failed to improve.
When the three-month moving averages for regional HMI scores were examined, the Northeast increased four points to 46, the Midwest increased two points to 37, the South increased four points to 49, and the West increased four points to 38.
