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Builder Confidence Edges Up in March

Builder confidence in the market for newly-built, single-family homes in March rose two points to 44, according to the National Association of Home Builders/Wells Fargo Housing Market Index. This is the third straight monthly increase in builder sentiment levels.

The HMI survey shows that builders had better than anticipated new home sales during the past two months because of continued use of incentives and price discounts. Thirty-one percent of builders said they reduced home prices in March, the same share as in February, but lower than the 36 percent that was reported last November. And 58 percent provided some type of incentive in March, about the same as the 57 percent who did in February, but lower than the 62 percent of builders who offered incentives in December.

NAHB’s take on the data

“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,” says 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.”

“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,” says NAHB Chief Economist Robert Dietz. “For example, 40 percent 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 loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”

Further HMI data

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.