Builder Confidence Moves into Positive Territory

(Courtesy NAHB)

Solid demand, low existing inventory and improving supply chain efficiency shifted builder confidence into positive territory in June for the first time in 11 months, the National Association of Home Builders/Wells Fargo Housing Market Index reported.

Builder confidence in the market for newly built single-family homes rose five points in June to 55–the sixth straight month builder confidence has increased and the first-time sentiment levels have surpassed the midpoint of 50 since July 2022, the report said.

NAHB Chair Alicia Huey, a custom home builder and developer from Birmingham, Ala., said builders feel cautiously optimistic about market conditions given the low levels of existing home inventory and ongoing gradual improvements for supply chains. “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,” she said.

“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” NAHB Chief Economist Robert Dietz said. “This month marks the first time in a year that both the current and future sales components of the HMI have exceeded 60, as some buyers adjust to a new normal in terms of interest rates. The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

Shelter cost growth now represents 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, Dietz noted. “By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation,” he said.

In another sign of gradual optimism for the state of demand for single-family homes, the June HMI survey found that overall, builders are gradually pulling back on sales incentives: one-quarter of builders reduced home prices to bolster sales in June, down from 27% in May and 30% in April. This figure has declined steadily since peaking at 36% in November 2022.