As homebuyers face ongoing frustration this spring due to the limited inventory of existing homes, there is a glimmer of hope in the housing market: new home builders.
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes rose by five points to reach 50 in May. This marks the fifth consecutive month of increasing builder confidence and the first time since July 2022 that sentiment levels have reached the midpoint mark of 50. Scores above 50 indicate that builders perceive market conditions as “good” rather than “fair” or “poor.”
One contributing factor to the constrained supply of homes is the prevalence of sub-5% mortgage interest rates, which approximately 85% of current mortgage holders are locked into. These low rates discourage existing homeowners from selling their properties and purchasing new ones at today’s elevated interest rates.
In light of the limited inventory, more buyers are turning to new homes. The Department of Housing and Urban Development and the Census Bureau reported a nearly 10% increase in sales of newly built single-family homes in March.
While new home construction plays an increasingly significant role in the marketplace and fuels optimism among builders, they continue to grapple with persistent challenges in meeting the growing demand for new construction. A noteworthy indicator for builders is the gradual slowdown of builder incentives that had previously played a pivotal role in attracting buyers.