The low number of existing homes for sale is boosting optimism among people building new homes.
Rising mortgage rates have disincentivized homeowners from putting their homes on the market. Even if they were to make a gain on the sale, they would face a steep increase in monthly expenses due to higher rates. So many homeowners are sitting tight, creating a shortage of homes for sale.
While that’s painful for would-be buyers, it is proving a boon to home builders. The National Association of Home Builders (NAHB) said on Tuesday that its monthly index of homebuilder confidence jumped five point to 50 in May, the fifth consecutive monthly gain and the strongest reading since July 2022.
Economists had forecast that the confidence index would hold at last month’s reading of 45. This is the first reading at 50 or above since last July.
“Limited existing inventory, which has put a renewed emphasis on new construction, resulted in a solid gain for builder confidence in May even as the industry continues to face several challenges, including building material supply chain disruptions and tightening credit conditions for construction loans,” the NAHB said.
“Lack of existing inventory continues to drive buyers to new construction,” said NAHB Chief Economist Robert Dietz. “In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”