Homebuilders are all smiles right now
For the first time in nearly a year, homebuilder confidence moved into positive territory thanks to strong consumer demand, limited competition from the existing home sales market, and an improving supply chain.
The National Home Builders Association‘s June survey marks the sixth straight month that builder confidence has increased and is the first time that sentiment levels have surpassed the midpoint of 50 (out of 100) since July 2022. The score in June was 55, up five points from May.
“Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “However, access for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows.”
The Federal Reserve pausing its tightening cycle is a good sign for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.
NAHB Chief Economist Robert Dietz noted that the Fed and Washington policymakers must factor into consideration how the state of home building is critical for the inflation outlook and the future of monetary policy.
“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily and single-family,” he said.
Another positive sign for the state of demand for single-family homes is that the June HMI survey shows that homebuilders are gradually pulling back on sales incentives.
In June, 25% of homebuilders reduced home prices to bolster sales, compared to 27% in May and 30% in April. Also, the average price reduction was 7% in June, below the 8% rate recorded in December 2022. The NAHB reported that 56% of homebuilders offered incentives to buyers in June, slightly more than in May (54%), but fewer than in December 2022 (62%).
Existing home sales have slumped to seasonal historic lows since the COVID-19 pandemic, giving homebuilders an advantage. Altos Research data showed just 451,000 single-family homes on the market as of June 16; there were about 950,000 on the market in June 2019.
The NAHB reported that homebuilders’ gauge of current sales conditions rose five points to 61, and they expect that to remain consistent over the next six months. The gauge measuring traffic of prospective buyers increased four points to 37.
Regionally speaking, the Northeast increased two points to 47, the Midwest increased four points to 43, the South moved three points higher to 55 and the West posted a five-point gain to 46.