U.S. homebuilders are expressing increased confidence in their industry, marking the most optimistic outlook since last summer, despite persistently high mortgage rates.
According to the National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder sentiment climbed by 3 points in March to reach 51.
This marks the fourth consecutive monthly increase, reaching its highest level since July. Additionally, sentiment has crossed into positive territory for the first time since July, with 50 being the threshold between positive and negative sentiment.
Although mortgage rates experienced fluctuations in March, with a slight decline followed by a rebound, the average rate for a 30-year fixed mortgage has remained around 7% since early February.
NAHB Chairman Carl Harris, a custom homebuilder from Wichita, Kansas, noted, “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.”
However, he highlighted ongoing challenges such as a shortage of buildable lots, skilled labor, and rising building costs due to new restrictive codes.
Among the index components, current sales conditions increased by 4 points to 56, expectations for the next six months rose by 2 points to 62, and buyer traffic saw a 2-point increase to 34. Regionally, sentiment improved the most in the Midwest and West over a three-month moving average.
Furthermore, the report indicated a decline in the number of builders reducing home prices to attract buyers. In March, only 24% of builders reported cutting home prices, down from 36% in December 2023, marking the lowest share since July.
However, the average price reduction remains stable at approximately 6%, with builders continuing to offer sales incentives like reduced mortgage rates.
Chief Economist for the NAHB, Robert Dietz, anticipates that future rate cuts by the Federal Reserve in the second half of 2024 will lead to lower financing costs, attracting more potential buyers.
Nonetheless, he cautioned that as home building activity increases, builders may face challenges with rising material prices, particularly for lumber.
