NAHB/Wells Fargo HMI Shows Builders “Cautiously Optimistic”

March 20th, 2023 by Editor

High construction costs and elevated interest rates continue to hamper housing affordability, but March had builders showing a “cautious optimism,” as demand shifts to the new home market.

Builder confidence in the market for newly built single-family homes in March rose two points to 44, according to the most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the third straight monthly increase in builder sentiment levels.

“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory,” said NAHB chairperson Alicia Huey, a custom home builder and developer from Birmingham, Ala. “But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.”

Meanwhile, the HMI survey shows that builders had better than anticipated new home sales during the past two months because of continued use of incentives and price discounts. Thirty-one percent of builders said they reduced home prices in March, the same share as in February, but lower than the 36% that was reported last November. Meanwhile, 58% provided some type of incentive in March, about the same as the 57% who did in February, but lower than the 62% of builders who offered incentives in December.

“While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers,” said NAHB chief economist Robert Dietz.

The HMI index gauging current sales conditions in March rose two points to 49 and the gauge measuring traffic of prospective buyers increased three points to 31. This marks the strongest traffic reading since September of last year. The component charting sales expectations in the next six months fell one point to 47.

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