NAHB Housing Market Index Rises for Fifth Month Driven by Limited Supply

NAHB housing market index rose to 50 in April (consensus 46) from 45 in April and gave the highest reading since July 2022. December was the lowest level since mid-2012 with the exception of the spring of 2020.  Builder sentiment had declined every month in 2022. Inflation, though softer, is still striking out affordability for many. However, confidence is rising with a lack of resale inventory despite elevated interest rates. There is strong demand for new construction driven by the limited housing supply. All three major HMI indices posted gains in May.

Location is critical, Redfin reported last month that U.S. rents saw the first annual slump since the pandemic hit in March 2020.

United States NAHB Housing Market Index

US NAHB home builder sentiment May 2023

  • NAHB HMI 50 vs 45 expected Prior was 45
  • Current single-family home sales 56 versus 51 prior
  • Sales over the next six months 57 versus 50 prior
  • Index of prospective buyers 33 versus 31 prior

“New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction. These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.”

Share of builders reducing home prices continues trending down:

  • The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in Feb. and March, and 36% last November.
  • The average price reduction remains at 6%, unchanged for the past four months.
  • 54% offered some type of incentive to bolster sales in May, down from 59% in April and 62% last December.

Regional HMI Scores

Looking at the three-month moving averages for regional HMI scores,

  • Northeast rsteady at 46
  • Midwest rose two points to 39
  • South rose three points to 52
  • West posted a three-point gain to 41

“Lack of existing inventory continues to drive buyers to new construction,” said NAHB Chief Economist Robert Dietz. “In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”

Home Builder Earnings Reports:

About National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)

Based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” 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.

Source: NAHB

From The TradersCommunity News Desk