Homebuilder sentiment rises in April, as builders grab near-record share of the market
Homebuilder sentiment rises when builders have an advantage in the resale market due to a lack of supply.
On Wednesday, May 15, 2020, stacks of bricks are seen outside a house under construction at the CastleRock Communities Sunfield development in Buda Texas.
The demand for new homes has increased for the fourth consecutive month in April, despite the lack of available homes.
In April, the National Association of Home Builders/Wells Fargo Housing Market Index climbed by 1 point to 45. Anything below 50 is considered a negative.
This is the highest reading since September. In April 2022, the index was 77.
The report stated that builders had an advantage due to the lack of listings in the resale marketplace. Existing home listings have dropped by about 25% in the last year.
The slight drop in mortgage rates is also helping to boost demand, though they are still higher than a year ago.
Builders note that further declines in mortgage interest rates to below 6% will increase demand for housing, said Alicia Huey of the NAHB, a custom homebuilder from Birmingham, Alabama. "Despite this, the industry is still plagued with building material problems, such as a lack of electrical transformer equipment.
Three components make up the index. The index of current sales conditions increased by 2 points, to 51.
Sales expectations for the next six-month period also increased by 3 points, to 50. This was the first time that both indicators had been positive since June when mortgage rates took off.
The number of buyers was, however, unchanged at 31. This is the first year that it has not improved.
According to builders, one-third is brand new housing, as opposed to the historical norm of 10%. After recent bank failures in the region, there were growing concerns that builders would have greater difficulty obtaining construction loans.
The sheer number of new buildings suggests otherwise.
Robert Dietz is the NAHB chief economist. He said that while AD&C lending conditions are tight, it has not been shown to be a significant factor in the worsening of the lending environment for land developers and builders.
In recent months, builders have used sales incentives, such as mortgage rate buydowns, to boost demand. The share of builders who are reducing home prices continues to decline.
A little under a third (32%) of builders reported lowering prices in April. This is down from 35% of builders at the end last year. In April, the average price was reduced by 6%.
In April, the percentage of builders who used incentives increased slightly from 58% to 59%. The percentage was lower than the 62% of December.
On a regional level, the average three-month moving trend of builder sentiment increased by 4 points in the Northeast to 46. In the Midwest it increased by 2 points, to 37.
In the South it rose 4 points to 49. In the West it increased by 4 points to 39.