A two-family home is under construction on November 17, 2023 in Shelburne, Vermont.
Robert Nickelsberg | Getty Images
U.S. homebuilders are more confident about their businesses than they’ve been since last summer as they see stronger demand despite continuing high mortgage rates.
Sentiment among home builders increased by 3 points in March, to 51 points National Association of Home Builders/Wells Fargo Housing Market Index. The reading rose for the fourth month in a row, reaching its highest level since July.
For the first time since July, the mood also increased positively. Fifty is the border between positive and negative moods.
Mortgage rates dropped in the first week of March before rising again in the second week. As of early February, the average rate on a preferred 30-year fixed-rate mortgage has hovered around 7%.
“Buyer demand remains strong and we expect more consumers to jump off the sidelines and enter the market if mortgage rates continue to decline later in the year,” said NAHB President Carl Harris, a Wichita-based custom home builder in the state of Kansas. “But while there is much pent-up demand, homebuilders continue to face several supply-side challenges, including shortages of development land and skilled labor, and restrictive new regulations that continue to drive up the cost of building homes.”
Of the three index components, current selling conditions rose 4 points to 56, expectations over the next six months rose 2 points to 62, and buyer traffic rose 2 points to 34.
Regionally, sentiment rose most in the Midwest and West on a three-month rolling average.
The report also noted that fewer and fewer builders are lowering home prices to draw buyers. In March, 24% of builders reported house price cuts, down from 36% in December 2023, the lowest percentage since July.
The average price reduction stays constant at around 6%. Construction firms proceed to make use of sales incentives, akin to lowering mortgage rates.
“With the Federal Reserve expected to announce future interest rate cuts in the second half of 2024, lower financing costs will attract many potential buyers to the market,” said Robert Dietz, NAHB chief economist. “However, as residential construction activity increases, builders will likely struggle with rising material prices, especially lumber.”
