Homebuilder Sentiment Unexpectedly Improves, First Positive Reading Since July

Confidence is building among the men and women building homes across America.

Builders are seeing rising demand for new homes, boosted by a lack of supply of existing homes on the market, and expecting a decline in mortgage rates.

The National Association of Home Builders/Wells Fargo index of homebuilder sentiment rose by 3 points to 51. Wall Street was expecting the index to remain at 48. This was the fourth consecutive monthly gain.

It is also the first time that the index has climbed above the breakeven point of 50 since last July.

The measure of expected sales in the next six months climbed to 62, the highest since June. The indexes of prospective buyer traffic and current sales rose to seven-month highs.

“Buyer demand remains brisk and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “But even though there is strong pent-up demand, builders continue to face several supply-side challenges, including a scarcity of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of building homes.”

In the final three months of last year, expectations that the Fed would cut its benchmark rate several times this year helped push down mortgage rates. The average rate on a 30-year fixed mortgage fell from 7.8 percent in October to 6.6 percent at the end of December. Since then, mortgage rates have mostly moved sideways as economic growth and inflation appear to be running hotter than expected, causing some to expect fewer rate cuts and a later start to the cutting cycle.

“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” said NAHB Chief Economist Robert Dietz. “However, as home building activity picks up, builders will likely grapple with rising material prices, particularly for lumber.”

The NAHB said that builders are cutting back on reducing home prices, which could add to inflationary pressures. In March 24 percent of builders said they were cutting prices, the lowest share since July 2023.