NAHB: June 2023 Builder Confidence Rose to Positive Territory

According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) issued today, builder confidence in the market for newly built single-family homes increased five points in June to 55.

Strong demand, a shortage of current inventory, and improved supply chain efficiency all contributed to builders’ confidence rising for the first time in 11 months.

This is the sixth month in a row that builder confidence has improved, and it is the first time sentiment has crossed the midpoint of 50 since July 2022.

“Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains,” NAHB Chairman Alicia Huey, a Birmingham, Alabama-based custom house builder and developer, stated.

“However, access for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows.”

“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” NAHB Chief Economist Robert Dietz said.

“This month marks the first time in a year that both the current and future sales components of the HMI have exceeded 60, as some buyers adjust to a new normal in terms of interest rates. The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

Dietz went on to say that the Fed and policymakers in Washington must analyze how the state of home construction affects the inflation outlook and the future of monetary policy.

“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily and single-family,” he added.

“By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”

In another indicator of gradual optimism for the health of single-family home demand, the June HMI survey reveals that builders are steadily reducing sales incentives:

• In June, 25% of builders cut home prices to boost sales. In May, it was 27%, and in April, it was 30%. It has progressively fallen after peaking at 36% in November 2022.
• In June, the average price decrease was 7%, which was lower than the 8% rate in December 2022.
• In June, 56% of builders provided incentives to purchasers, somewhat higher than in May (54%), but lower than in December 2022 (62%).

The NAHB/Wells Fargo HMI is based on a monthly survey that NAHB has been running for more than 35 years and assesses builder perceptions of current single-family home sales and sales projections for the next six months as “good,” “fair,” or “poor.”

Builders are also asked to rank prospective buyer traffic as “high to very high,” “average,” or “low to very low” in the study.

The scores for each component are then used to produce a seasonally adjusted index, with any value more than 50 indicating that more builders consider conditions to be favorable rather than poor.

In June, all three key HMI indices rose.

The HMI index indicating current sales circumstances improved by five points to 61, the component indicating sales expectations in the next six months increased by six points to 62, and the gauge indicating traffic of prospective buyers increased by four points to 37.

Looking at three-month moving averages for regional HMI scores, the Northeast grew by two points to 47, the Midwest by four points to 43, the South by three points to 55, and the West by five points to 46.