Homebuilder sentiment breaks out of negative territory for the first time in nearly a year


A subdivision of a house has been built on January 31, 2023 in San Marcos, Calif. Construction workers work on a house.

Mike Blake | reuters

Homebuilders are getting a big boost from the dearth of existing homes for sale, and they seem to be facing some challenges from the financial markets.

Builder confidence in the market for newly constructed single-family homes rose 5 points to 50 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fifth straight month of gains and the first reading of builder sentiment that was not negative since July, which would be a reading below 50. The sentiment was at 69 in May last year.

NAHB President Alicia said, “New home construction is taking an increased role in the market as homeowners with loans far below current mortgage rates are choosing to remain owners, and this greatly reduces the supply of existing homes. Keeping it level.” Huey, a homebuilder from Birmingham, Alabama, in a release.

Huey said builders are facing challenges to meet the rising demand. While the price of lumber has been falling since March, the recent banking crisis and high interest rates are still tightening credit conditions for residential real estate development and construction, along with a short supply of building materials. Is.

Of the index’s three components, current sales conditions increased 5 points to 56, sales expectations over the next six months increased 7 points to 57, and buyer traffic increased 2 points to 33.

Builders are benefitting from the very subdued current home market. According to Realtor.com, new listings were down about 22% year over year in April. With mortgage rates now double what they were a year and a half ago, some potential sellers may be reluctant to trade in a second home at a higher rate.

“In March, 33% of homes listed for sale were new homes in various stages of construction. This share averaged 12.7% from 2000-2019. With limited available housing inventory, new construction will remain a significant portion of potential buyers. NAHB “Look in the quarters ahead,” said Robert Dietz, chief economist at the Washington Post.

Homebuilders attracted more buyers by offering incentives such as lower mortgage rates. However, it seems they are taking off and demand is on the rise.

The share of builders underreporting home prices declined to 27% in May from 30% in April, 31% in February and March and 36% last November. While more than half the builders are still offering some sort of sales incentive, the share is down from 62% last December.

Regionally, at the three-month moving average, builder sentiment in the Northeast was unchanged at 45. Sentiment in the Midwest rose 2 points to 39. In the South, it increased by 3 points to 52, and in the West by 3 points to 3. 41.

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