Builders are feeling more confident than they have since last July, as prospective homebuyers emerging from the woodwork increase demand for new homes.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) indicated that homebuyer sentiment rose three points in March to 51, moving into positive territory for the first time since summer 2023.
“The solid level of single-family production in February tracks closely with rising builder sentiment, and with mortgage rates expected to moderate further this year, this will provide an added boost for single-family building,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “But," he added, "policymakers need to help the industry's supply-chains in order to protect housing affordability and add much needed supply to boost inventory.”
Housing starts and building permits are also ascending above consensus expectations, aligning with the rise in builder sentiment.
Permits increased 1% in March over the prior month, the highest level since May 2022. Additionally, housing starts rose 11.6% month over month, the highest level since April 2022. Home completions take the cake in this trio, rising 20.2% in the same time frame, indicating a rapid influx of inventory.
“Single-family permits have shown slow but steady growth since late 2022, while multi-family permits have declined,” First American Financial Corp. Deputy Chief Economist Odeta Kushi said, commenting on the recent trends. “There are still a near-record number of multi-family units under construction, so builders are focusing on completing projects rather than starting new projects.”
Kushi pointed out that weather can impact housing starts, so building permits are often a better indicator of the construction market's future.
February’s permits came in at a seasonally adjusted annual rate of 1.518 million, above consensus expectations of 1.496 million, and 2.4% above the February 2023 rate of 1.482 million.
“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” NAHB Chief Economist Robert Dietz anticipates. “However, as home building activity picks up, builders will likely grapple with rising material prices, particularly for lumber.”
Mortgage rates are easing into this spring housewarming party, jumping down and then up again in March, but remaining around 7% since early February.
