A two-family home is under construction on November 17, 2023 in Shelburne, Vermont.
Robert Nickelsberg | fake images
American homebuilders feel more confident about their businesses than they have since last summer, as they see better demand despite persistently high mortgage rates.
Homebuilder sentiment rose 3 points in March to 51 on the National Association of Home Builders/Wells Fargo Housing Market Index. The reading rose for the fourth consecutive month, reaching its highest level since July.
Sentiment also moved into positive territory for the first time since July. Fifty is the line between positive and negative sentiment.
Mortgage rates fell in the first week of March, only to skyrocket again in the second week. The average rate on the popular 30-year fixed mortgage has hovered around 7% since early February.
“Buyer demand remains vigorous and we expect more consumers will jump into the market if mortgage rates continue to fall later this year,” said NAHB President Carl Harris, a custom home builder in Wichita, Kansas. “But even though there is strong pent-up demand, builders continue to face several supply-side challenges, including a shortage of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of home construction.” .
Of the three components of the index, current sales conditions increased 4 points to 56, expectations in the next six months increased 2 points to 62 and buyer traffic increased 2 points to 34.
Regionally, on a three-month moving average, confidence increased the most in the Midwest and West.
The report also noted that fewer builders are lowering home prices to attract buyers. In March, 24% of builders reported having cut home prices, up from 36% in December 2023 and the lowest share since July.
The average price cut remains stable at around 6%. Builders still use sales incentives, such as reducing mortgage rates.
“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will attract many potential buyers to the market,” said Robert Dietz, NAHB chief economist. “However, as home construction activity recovers, builders will likely have to contend with rising materials prices, particularly lumber.”
