March Builder Confidence Up Third Straight Month; NAHB Says Future Outlook ‘Uncertain’
Builder confidence in the market for newly built single-family homes in March rose for the third straight month, but the National Association of Home Builders said economic volatility makes the longer-term outlook uncertain.
The NAHB/Wells Fargo Housing Market Index rose by two points in March to 44. The HMI index gauging current sales conditions in March rose two points to 49 and the gauge measuring traffic of prospective buyers increased three points to 31. This marks the strongest traffic reading since September of last year. The component charting sales expectations in the next six months fell one point to 47.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose five points to 42, the Midwest edged one-point higher to 34, the South increased five points to 45 and the West moved four points higher to 34.
“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.”
“While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers,” said NAHB Chief Economist Robert Dietz. “For example, 40% of builders in our March HMI survey currently cite lot availability as poor. And a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction (AD&C) loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”
Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
For more news on the state of new home building, see today’s MBA NewsLink article about the MBA Builder Applications Survey. On Thursday, HUD and the Census Bureau release its monthly New Residential Construction report on February housing starts, permits and completions.