Those sitting on the sidelines waiting for more inventory to appear in order to get into a home are now turning to newly built homes in order to secure housing, as the number of new builds swells across the country.
But that lack of inventory continues to drive buyers towards new home construction, coupled with strong demand and mortgage rates below last year’s housing cycle peak helped push builder sentiment above a key data point in March.
According to the National Association of Homebuilders (NAHB), builder confidence in the market for newly built single-family homes climbed three points to 51 in March, according to the NAHB/Wells Fargo Housing Market Index (HMI) released March 18. This is the highest level since July 2023 and marks the fourth consecutive monthly gain for the index. It is also the first time that the sentiment level has surpassed the breakeven point of 50 since last July.
Insight from NAHB Chairman Carl Harris
“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 custom home builder from Wichita, Kan. “But 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.”
“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” said NAHB Chief Economist Robert Dietz. “However, as home building activity picks up, builders will likely grapple with rising material prices, particularly for lumber.”
With mortgage rates below 7% since mid-December per Freddie Mac, more builders are cutting back on reducing home prices to boost sales. In March, 24% of builders reported cutting home prices, down from 36% in December 2023 and the lowest share since July 2023. However, the average price reduction in March held steady at 6% for the ninth straight month. Meanwhile, the use of sales incentives is holding firm. The share of builders offering some form of incentive in March was 60%, and this has remained between 58% and 62% since last September.
All three of the major HMI indices 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 for regional HMI scores, 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.
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