Construction workers work on a house as a housing development is built in San Marcos, California, January 31, 2023.
Mike Blake | Reuters
Mortgage rates are high and volatile, homes are still expensive, and inflation is out of control, but even so, the country’s homebuilders are starting to feel better about their business.
A monthly indicator of builder confidence in the market for newly built single-family homes rose in March, although analysts had expected a decline. The National Association of Home Builders/Wells Fargo housing market index rose two points to 44. Anything above 50 is considered positive.
This is the third consecutive monthly increase in builder sentiment. The index stood at 79 in March last year, when mortgage rates were significantly lower.
“Even as builders continue to face stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers wait for interest rates to fall and are turning more to the new home market due to a shortage of existing inventory,” NAHB President Alicia Huey, a custom home builder from Birmingham, Alabama, said in a statement. “But Given recent concerns about banking system instability and interest rate volatility, builders are very uncertain about the short to medium term outlook.”
Across all three index components, current selling conditions rose two points to 49, and buyer traffic rose three points to 31. Selling expectations over the next six months, however, fell by a point at 47.
“While the stress in the financial system has recently reduced long-term interest rates, which will boost housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for potential buyers. “, said Robert Dietz, chief economist of the NAHB at the release.
The second largest home builder in the country, Lennar, released Tuesday quarterly results that beat analysts’ expectations. Lennar Chairman Stuart Miller noted in the statement: “Buyers are eyeing the possibility that the current interest rate environment will be the new normal. As a result, the housing market continues to shift as the growing formation of households and families continues to drive demand against a chronic shortage of supply.”
And the supply situation could also be another victim of banking stress. Dietz noted that 40% of builders in the March sentiment survey currently rate batch availability as “poor.”
“A follow-up effect of pressure on regional banks, along with continued Fed tightening, will be additional constraints on acquisition, development and construction (AD&C) lending for builders across the country. AD&C loan terms are tight, lot inventory is tightening and adding an additional hurdle to housing affordability,” Dietz said.
Regionally, on a three-month moving average, builder sentiment in the Northeast rose five points to 42. In the Midwest, it rose one point to 34. In the South, it rose by five points to 45, and in the West it has increased by four. points above 34.
