Even though it remained low overall, U.S. homebuilder sentiment rebounded in May as affordability concerns continued to weigh on the outlook during the spring selling season, according to an index of market conditions from the National Association of Home Builders and Wells Fargo.
The index showed an increase of 3 points to 37, with a value below 50 meaning more builders see conditions as poor rather than than good.
According to the NAHB, builder confidence made a modest gain in May even as buyers grapple with rising mortgage rates and economic uncertainty, while builders continue to contend with high land, labor, and construction costs, NAHB said.
“The housing market remains soft as higher mortgage rates, rising gas prices and economic uncertainty related to the war in Iran continue to dampen buyer demand,” said NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio. “However, efforts in the House to modify the 21st Century ROAD to Housing Act could increase the nation’s housing supply and help ease builder concerns.”
NAHB Chief Economist Robert Dietz said the interest rate are impacting buyer demand.
Interest Rates Affect Buyer Demand
“Recent increases for long-term interest rates will continue to hold back home buyer demand,” Dietz said. “Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges.”
NAHB said that the latest HMI survey also revealed that 32% of builders cut prices in May, down from 36% in April. It said the average price reduction was 6%, up from the 5% figure in April.
The use of sales incentives was 61% in May, up slightly from 60% in April, and marked the 14th consecutive month this share has reached 60% or higher, HAHB said.
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 HMI is derived from a monthly survey that NAHB has been conducting for more than 40 years.
NAHB said 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 view conditions as good than poor.
Some Buyers Move Forward
All three of the major HMI indices posted gains in May, as some buyers who had been holding back decided to move forward. The HMI index gauging current sales conditions rose three points to 40 from April to May, the index measuring future sales rose three points to 45 and the index charting traffic of prospective buyers posted a three-point gain to 25, NAHB said.
Examining the three-month moving averages for regional HMI scores, the Midwest registered a one-point gain to 43, the Northeast increased one point to 42, the South stayed at 35, and the West fell one point to 28.
