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Builder confidence saw modest gains in May despite rising mortgage rates and economic uncertainty, while builders continue to deal with elevated land, labor and construction costs. According to the most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes increased three points to 37 in May.
“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,” says NAHB chairman Bill Owens, a homebuilder 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.”
The HMI survey also revealed that 32% of builders cut prices in May, down from 36% in April. The average price reduction was 6%, up from 5% in April. The use of sales incentives was 61% in May, up slightly from 60% in April, marking the 14th consecutive month this share has reached 60% or higher.
“Recent increases for long-term interest rates will continue to hold back home buyer demand,” says NAHB chief economist Robert Dietz. “Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges.”
Derived from a monthly survey that NAHB has been conducting for more than 40 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 view conditions as good than poor.
All three of the major HMI indices increased in May, as some buyers who had been holding back decided to move forward this spring. The HMI index gauging current sales conditions rose three points to 40 from April to May, the index measuring future sales increased three points to 45 and the index charting traffic of prospective buyers posted a three-point gain to 25.
Looking at the three-month moving averages for regional HMI scores, the Midwest registered a one-point gain to 43, the Northeast rose one point to 42, the South held constant at 35 and the West fell one point to 28.
