Builder Sentiment for Single Family Homes Reaches Highest Level Since 2022
According to the National Association of Home Builders/Wells Fargo Housing Market Index, sentiment in the market for single-family homes rose one point in July to 56. This marks the seventh consecutive month of gains and the highest level since June 2022. A reading above 50 represents positive sentiment.
Builders attribute the increase in sentiment to the low supply in the resale market, which is driving demand towards new construction. However, challenges such as higher mortgage rates and supply-side issues continue to put pressure on the market.
Robert Dietz, NAHB’s chief economist, stated, “Although builders remain cautiously optimistic about market conditions, the rise in mortgage rates over the past month serves as a reminder of the stop and start process the market will experience as the Federal Reserve nears the end of its ongoing tightening cycle.”
Mortgage rates have seen a slight decrease in the last week after briefly crossing over 7% in May and at the end of June for 30-year fixed mortgages. However, these higher rates are straining affordability in the market, as prices for existing homes continue to rise.
In July, the NAHB index’s three components saw mixed results. Current sales conditions rose one point to 62, buyer traffic increased three points to 40 (the highest reading since June of last year), and sales expectations in the next six months fell two points to 60. The decline in expectations is attributed to the increase in interest rates and its impact on affordability.
Despite the higher mortgage rates, builders are implementing fewer incentives. In July, only 22% of builders reported cutting prices, down from 25% in June and 27% in May.
Sales of newly built homes in May increased by 13% compared to April and were 20% higher than in May 2022, as per the U.S. Census Bureau. However, the median price in May was down over 7% from the previous year, but this could be influenced by the mix of homes being sold, which currently leans towards the lower end.
The rise in builder sentiment indicates positive momentum in the market for single-family homes, despite the challenges posed by mortgage rates and supply-side issues. The demand for new construction remains strong as buyers seek alternatives in the face of limited resale options.