Homebuilder confidence rises in March as demand improves

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Homebuilder confidence rises in March as demand improves

Construction workers work on a home as a subdivision of the home is built in San Marcos, California January 31, 2023.

Mike Blake | Reuters

Mortgage rates are high and volatile, houses are still expensive and inflation is not under control, but despite this, the country’s home builders are starting to feel better about their business.

A monthly measure of homebuilder confidence in the new-build single-family home market rose in March, although analysts expected a decline. The National Association of Home Builders/Wells Fargo housing market index rose two points to 44. Anything above 50 is considered positive.

It’s the third straight monthly increase in builder sentiment. The index stood at 79 in March last year when mortgage rates were significantly lower.

“Even as builders continue to grapple with stubbornly high construction costs and disruptions to the material supply chain, they continue to report strong pent-up demand as buyers await falling interest rates and turn more to the new home market due to a shortage of existing inventory,” NAHB said – Chairwoman Alicia Huey, a home builder from Birmingham, Alabama, in a press release, “However, given recent concerns about instability in the banking system and volatility in interest rates, homebuilders are very uncertain about the near- and medium-term outlook.”

Of the index’s three components, current selling conditions rose two points to 49 and buyer traffic rose three points to 31. However, selling expectations over the next six months fell one point to 47.

“While the stress in the financial system has recently pushed long-term interest rates lower, which will support housing demand in the coming weeks, the cost and availability of housing stock remains a critical obstacle for potential homebuyers,” said Robert Dietz, NAHB’s chief economist at the release.

The nation’s second largest home builder, lennar, on Tuesday reported quarterly earnings that beat analysts’ expectations. Lennar Chairman Stuart Miller noted in the press release: “Homebuyers are considering the possibility that today’s interest rate environment could be the new normal. Accordingly, the housing market continues to change as growing household and family formation continues to drive demand against a chronic shortage of supply.”

And the supply situation could also become another victim of the bank stress. Dietz noted that 40% of builders in the March sentiment survey currently characterize land availability as “poor”.

“A knock-on effect of the pressure on regional banks and the ongoing Fed tightening will be further restrictions on acquisition, development and construction (AD&C) lending for construction companies across the country. When credit conditions are tight for AD&C, the inventory of land is constrained and presents an additional hurdle to housing affordability,” Dietz said.

Regionally, homebuilder sentiment in the Northeast rose five points on the three-month moving average to 42. In the Midwest it rose one point to 34. In the South it rose five points to 45 and in the West it rose four points higher to 34.