Homebuilder confidence in the newly-built single-family market increased by five points in May, with lower mortgage rates influencing the market, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
- An index tracking homebuilder confidence rose five points to 50 in May.
- Lack of existing inventory continues to drive buyers to new construction.
- Builders are giving fewer incentives to buyers than they did in April.
For the first time since July 2022, the index rose to 50 points, a sign that dismal market conditions may be waning. Other metrics were on the rise as well: current sales rose five points to 56 and sales expectations for the next six months increased seven points to 57.
Inventory is still a problem for the U.S. housing market, with fewer would-be sellers entering the market over reluctance to give up the lower interest rate they have on their current mortgage. But rates are teasing a decline, which may drive Americans back into the market, with builders likely to benefit from the lack of inventory.
“While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction," said NAHB Chairman Alicia Huey in a statement. "These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.”
Throughout March, 33% of homes listed for sale were new homes in different stages of construction, according to the NAHB. From 2009- 2012, that share was 12.7%.
"With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead, said NAHB Chief Economist Robert Dietz.
With elevated interest rates that have more than doubled since 2021, the NAHB survey found builders are willing to offer more incentives to attract buyers, though the use of those incentives is now slowing across the board.
The share of builders reducing home prices dropped to 27% in May, down from 30% in April and 36% last November. In order to bolster sales, 54% of builders offered incentives in May, down from 59% in April. The average price reduction remains at 6%, the same as it has been for the last four months.
There were regional gains in the index across the country, except in the Northeast which remained at 45. The Midwest rose two points to 39, the South increased three points to 52, and the West increased three points to 41.