- Homebuilders are starting to feel better about the market for newly built single-family homes.
- It's the third straight monthly increase in builder sentiment.
- Sales expectations in the next six months, however, fell, and the industry is watching recent instability in the banking system.
Mortgage rates are high and volatile, homes are still pricey, and inflation is not in check, but, even so, the nation's homebuilders are starting to feel better about their business.
A monthly gauge of builder confidence in the market for newly built single-family homes rose in March, even though analysts expected a drop. The National Association of Home Builders/Wells Fargo Housing Market Index rose two points to 44. Anything above 50 is considered positive.
It's the third straight monthly increase in builder sentiment. The index stood at 79 in March of last year, when mortgage rates were significantly lower.
"Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory," NAHB Chairman Alicia Huey, a custom homebuilder from Birmingham, Alabama, said in a release. "But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook."
Of the index's three components, current sales conditions rose two points to 49, and buyer traffic rose three points to 31. Sales expectations in the next six months, however, fell one point to 47.
"While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers," said Robert Dietz, NAHB's chief economist in the release.
The nation's second-largest homebuilder, Lennar, reported quarterly earnings Tuesday that beat analysts' expectations. Lennar's chairman, Stuart Miller, noted in the release, "Homebuyers are considering the possibility that today's interest rate environment may be the new normal. Accordingly, the housing market continues shifting as growing household and family formation continued to drive demand against a chronic supply shortage."
And the supply situation may also be another victim of the banking stress. Dietz noted that 40% of builders in the March sentiment survey currently characterize lot availability as "poor."
"A follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction (AD&C) loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability," said Dietz.
Regionally, on a three-month moving average, builder sentiment in the Northeast rose five points to 42. In the Midwest, it moved up one point to 34. In the South it rose five points to 45, and in the West it moved four points higher to 34.