Homebuilder confidence rises in March as demand improves

San Marcos, Calif., January 31, 2023. Construction workers are building a house as part of a home.

Mike Black | Reuters

Mortgage rates are high and unstablehousing remains expensive and inflation is unchecked, but even so, the country’s homebuilders are starting to feel better about their business.

A monthly gauge of builders’ confidence in the new single-family home market rose in March despite analysts’ expectations for a decline. The National Association of Home Builders/Wells Fargo Housing Market Index rose two points to 44. Any value above 50 is considered positive.

It was the third month in a row that builder sentiment rose. The index was 79 last March, when mortgage rates were significantly lower.

“While builders continue to grapple with high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers await lower interest rates and turn more to new home market inventory due to a shortage of existing homes, ’” Alicia Huey, president of NAHB, a custom home builder from Birmingham, Alabama, said in a release. “However, builders are highly uncertain about the near- and medium-term outlook given recent concerns over banking system instability and interest rate volatility.”

Of the three components of the index, current sales conditions rose 2 points to 49 and buyer traffic rose 3 points to 31. However, sales expectations for the next six months fell 1 point to 47.

“While financial system stress has recently lowered long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a key constraint for potential homebuyers,” said NAHB Chief Economist Robert Dietz. “release.

America’s second largest homebuilder, leiner, reported quarterly earnings on Tuesday that topped analysts’ expectations. Lennar Chairman Stuart Miller noted in the release, “Homebuyers are considering the possibility that today’s interest rate environment may become the new normal. As a result, the housing market continues to change”

The supply situation may also be another casualty of the pressure on the banking sector. Dietz noted that 40% of builders in the March sentiment survey now describe lot availability as “poor.”

“The pressure on regional banks and the fallout from continued Fed tightening will further limit acquisition, development and construction (AD&C) lending to builders across the country. When AD&C lending conditions are tight, large inventories shrink and add additional hurdles to housing affordability. obstacles,” Dietz said.

Regionally, builder sentiment in the Northeast rose 5 points to 42, based on the three-month moving average. The Midwest rose 1 point to 34. The South is up 5 points to 45 and the West is up 4 points to 34.

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