Builder optimism rose again in April thanks largely to a tight inventory of existing homes, and the index components that gauge future expectations rose the most.
WASHINGTON – Builders remained cautiously optimistic in April as limited resale inventory helped increase demand for new homes.
April builder confidence in the market for newly built, single-family homes rose one point to 45, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
“For the fourth straight month, builder confidence has increased due to a lack of resale inventory despite elevated interest rates,” says NAHB Chairman Alicia Huey. “Builders note that additional declines in mortgage rates, to below 6%, will price-in further demand for housing.”
However, Huey notes that the industry is still “plagued by building material issues, including lack of access to electrical transformer equipment.”
“Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%,” says 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,” he adds. “And while AD&C (Acquisition Development and Construction) 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 survey also found that the share of builders reducing home prices continues trending down: 30% said they reduced prices in April compared to 31% in March and February, 35% in December and 36% in November.
April’s average price reduction 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 edged up from 57% in February to 58% in March to now 59% in April, but it’s still lower than it was last December (62%).
The complete HMI index and each of its components operate on a 0-100 system, where any number above 50 indicates a leaning toward optimism and anything below toward pessimism.
In April –for the first times since June 2022 – two components rose above 50: The one focused on current sales conditions rose two points to 51 and the component charting sales expectations in the next six months increased three points to 50.
The gauge measuring traffic of prospective buyers remained unchanged at 31, 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.
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