Solid demand, a lack of existing inventory and improving supply chain efficiency helped shift builder confidence into positive territory for the first time in 11 months. 

Builder confidence in the market for newly built single-family homes in June rose five points to 55, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released. This marks the sixth straight month that builder confidence has increased and is the first time that sentiment levels have surpassed the midpoint of 50 since July 2022.

“Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama. “However, access for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows.”

“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” said NAHB Chief Economist Robert Dietz. “This month marks the first time in a year that both the current and future sales components of the HMI have exceeded 60, as some buyers adjust to a new normal in terms of interest rates. The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

Dietz further noted the Fed and Washington policymakers must factor into consideration how the state of home building is critical for the inflation outlook and the future of monetary policy.

“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily and single-family,” he said. “By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”

And in another sign of gradual optimism for the state of demand for single-family homes, the June HMI survey shows that overall, builders are gradually pulling back on sales incentives:

• 25% of builders reduced home prices to bolster sales in June. The share was 27% in May and 30% in April. It has declined steadily since peaking at 36% in November 2022.
• The average price reduction was 7% in June, below the 8% rate in December 2022.
• 56% of builders offered incentives to buyers in June, slightly more than in May (54%), but fewer than in December 2022 (62%).

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