Builder Confidence Increases in May

Builder confidence rose in May due to limited inventory creating a stronger need for new construction, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fifth straight month of increases.

“New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said NAHB Chairman Alicia Huey. “While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction. 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.”

The HMI increased by five points to 50, and all three major HMI indices posted gains in May. The HMI index gauging current sales conditions rose five points to 56, the component charting sales expectations in the next six months increased seven points to 57 and the gauge measuring traffic of prospective buyers increased two points to 33.

The numbers:

The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in February and March, and 36% last November.
The average price reduction remains at 6%, unchanged for the past four months.
Fifty-four percent of builders offered some type of incentive to bolster sales in May, down from 59% in April and 62% last December.
The Midwest edged up two points to 39, the South increased three points to 52, and the West moved three points higher to 41. The Northeast held steady at 45.

“Lack of existing inventory continues to drive buyers to new construction,” said NAHB Chief Economist Robert Dietz. “In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000 - 2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”

Meanwhile, the RISMedia Broker Confidence Index (BCI) remained flat at 6.4 in April, still higher than its 5.3 reading at the second half of last year. RISMedia Senior Editor Jesse Williams, author of the BCI, attributes this to the unsure path of the Federal Reserve and their interest rate hikes, as well as the recent bank collapses.

For the full report, including data tables, click here.