The numbers: The National Association of Home Builders’ (NAHB) monthly confidence index rose 2 points to 44 in March, the trade group said on Wednesday.
This is the third month in a row that sentiment has improved among builders.
The jump in confidence in March was more than what analysts had expected. Economists polled by The Wall Street Journal expected the index to fall to 40.
The March reading of 44 was the strongest since September 2022.
A year ago, the index stood at 79.
Builders were cautiously optimistic about the future. Since construction costs are rising, and elevated mortgage rates are hurting affordability, they’re not expecting sales to return to normal.
But there’s still pent-up demand from buyers, which is a reason for their relative positivity.
Key details: The three gauges that underpin the overall builder-confidence index were mixed.
- The gauge that marks current sales conditions rose by 2 points.?
- The component that assesses sales expectations for the next six months fell by 1 point.
- And the gauge that measures traffic of prospective buyers rose by 3 points.
Builders in all four regions reported an increase in confidence, the NAHB said, led by the Northeast and South, where the index moved up 5 points each.
Due to their ability to offer rate buy-downs and other promotions that lower the cost of homeownership for buyers, as well as being one of the only players adding to housing inventory, builders are able to offer desperate buyers homes for sale. That’s keeping them confident.
But the fallout from the bank failures over the weekend may affect credit availability for homebuilders, the NAHB noted, which could weigh on future developments and construction.
Big picture: Despite new home sales generally playing second fiddle to existing-home sales, the fact that builders are putting out new housing units for buyers – and offering deals – is boosting their market share.
But mortgage rates are going back up. The 30-year was averaging at 6.75% as of Monday, according to Mortgage News Daily. And buyers are worried about the state of the economy and their job security. Both of these factors could suppress some of that pent-up demand builders are banking on.
What the NAHB said: “The cost and availability of housing inventory remains a critical constraint for prospective home buyers,” Robert Dietz, chief economist at the NAHB, said in a statement.
Plus, builders are facing constraints when it comes to land acquisition and credit, he added.
“40% of builders in our March … survey currently cite lot availability as poor,” Dietz explained. And with the U.S. Federal Reserve tightening even further, builders expect “further constraints for acquisition, development and construction … loans for builders across the nation,” he added.
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