A lack of existing inventory that continues to drive buyers to new home construction, coupled with strong demand and mortgage rates below last fall’s peak, helped push builder sentiment higher in March, according to a new survey.
Builder confidence in the market for newly built single-family homes climbed three points to 51 (on a scale of 0-to-100) in the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
It is the fourth consecutive monthly gain and the highest total since last July.
“Buyer demand remains brisk, and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year,” said NAHB chairman Carl Harris, a builder from Wichita, Kan.
But Harris added a cautionary addendum.
“Even though there is strong pent-up demand, builders continue to face several supply-side challenges, including a scarcity of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of building homes,” he said.
The prospect of lower interest rates in the second half of 2024 could be offset by higher material costs, particularly for lumber, added Robert Dietz, chief economist for the National Association of Home Builders.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders regard conditions as good than poor.
All three major HMI indexes posted gains in March. The HMI index charting current sales conditions increased four points to 56; the component measuring sales expectations in the next six months rose two points to 62; and the component gauging traffic of prospective buyers increased two points to 34.
Looking at the three-month moving averages, the Northeast increased two points to 59, the Midwest gained five points to 41, the South rose four points to 50 and the West registered a five-point gain to 43.
(Full HMI data tables can be found at nahb.org/hmi.)
In March, 24 percent of builders reported cutting home prices, down from 36 percent in December 2023 and the lowest share since July 2023. However, the average price reduction in March held steady at 6 percent for the ninth straight month.
The share of builders offering some form of incentive in March was 60 percent, in line with a range between 58 percent and 62 percent that has been seen over the past six months.
