Builders report strong demand as homebuyers wait for interest rates to drop
Builder confidence continued to gain momentum in March, but builders remain cautious due to the volatile mortgage rate environment.
Builder perceptions of current market conditions for newly-built single-family homes improved two points to 44 in March, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marks the third consecutive monthly gain in builder sentiment levels.
"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. "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."
The HMI index gauging current sales conditions in March grew two points to 49, and the gauge measuring traffic of prospective buyers climbed three points to 31 – the strongest traffic reading since September 2021. The component charting sales expectations in the next six months dropped one point to 47.
"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 remain 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."
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