Homebuilder Sentiment Continues to Warm Ahead of Spring Market

Homebuilder sentiment continues to warm, thawing as spring nears. Positive signs in the mortgage market coupled with a continued rate pause from the Fed and the possibility of an upcoming rate cut have led to the fourth consecutive month of sentiment increases, according to the latest data from the National Association of Home Builders (NAHB).

The NAHB/Wells Fargo Housing Market Index (HMI) increased three points to 51 in March, continuing 2024’s strong start after a four-point rise in February and a seven-point jump in January. These increases follow a three-point rise in December

“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. “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.”

Similar to last month, as builder’s positive outlook on the current market and future grows, they are beginning to decrease the discounts they’ve been offering to combat economic challenges. Only 24% of builders reported cutting home prices, down from 36% in December 2023 and the lowest share since July 2023. 

Despite this decrease in price cuts, the average price reduction in March still held steady at 6% for the ninth straight month. In addition, the share of builders offering some form of incentive in March was 60%, which has remained between 58% and 62% since September 2023.

All three of the major HMI indices posted gains in March. The HMI index charting current sales conditions increased four points to 56, the component measuring sales expectations in the next six months rose two points to 62 and the component gauging traffic of prospective buyers increased two points to 34.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 59, the Midwest gained five points to 41, the South rose four points to 50 and the West registered a five-point gain to 43.

“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.”

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