Builders remain optimistic despite the continued challenges posed by the building material supply-chain crisis, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report released Monday.
The report revealed that builder confidence in the market for newly built single-family homes in April rose one point to 45, marking the fourth consecutive month of increased confidence, driven by limited resale inventory despite elevated interest rates.
“Builders note that additional declines in mortgage rates, to below 6%, will price-in further demand for housing," said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. "Nonetheless, the industry continues to be plagued by building material issues, including a lack of access to electrical transformer equipment.”
The share of builders reducing home prices continues to trend downwards, the survey showed. In April, 30% of builders said they reduced prices, compared to 31% in March and February, 35% in December, and 36% in November.
The average price reduction in April was 6%, the same as in February and March but lower than in December (8%). Additionally, the share of builders using incentives to bolster sales increased, rising from 57% in February to 59% in April.
The HMI index gauging current sales conditions in April rose two points to 51, and the component charting sales expectations in the next six months increased three points to 50. It marks the first time both components have returned to the 50-plus range since June 2022.
The gauge measuring traffic of prospective buyers, however, remained unchanged at 31. It's the first time the traffic component failed to improve in 2023.
For the three-month moving averages for regional HMI scores, the Northeast rose four points to 46, the Midwest edged up two points to 37, the South increased four points to 49, and the West rose four points to 38.
“More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023," said NAHB Chief Economist Robert Dietz. "And while AD&C (acquisition, development and construction) loan conditions are tight, there is not significant evidence thus far that pressure on the regional bank system has made this lending environment for builders and land developers worse.”
Derived from a monthly survey conducted by NAHB for over 35 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.” Scores for each component are used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
Despite the challenges faced by the industry, builders remain cautiously optimistic, and the continued demand for new homes, coupled with incentives, is driving the market forward. However, the industry will need to keep addressing supply chain issues to keep the market moving forward.
