Builder Confidence Moves a Bit Higher in July

WASHINGTON – Buyers who can’t find an existing home turn to new construction, which helped builders’ confidence in single-family homes move higher in July.

In a 1-100 index where any number above 50 indicates optimism rather than pessimism, July’s reading hit 56 – one point higher than June’s 55 – despite higher mortgage rates, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This is the seventh straight month that builder confidence has increased and marks the highest level since June of last year.

“The lack of resale inventory means prospective homebuyers who have not been priced out of the market continue to seek out new construction in greater numbers,” says NAHB Chairman Alicia Huey, who says some industry challenges still remain.

“Builders are troubled over rising mortgage rates approaching 7% and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability,” Huey says.

“Although builders continue to remain cautiously optimistic … the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” adds NAHB Chief Economist Robert Dietz.

Shelter inflation accounts for roughly 40% of the Consumer Price Index, and Dietz says the best way to ease inflation is to build additional for-rent and for-sale housing. “There’s been some commentary linking gains for housing construction with increased concerns for additional inflation, but this has the economics backwards,” he says.

The July HMI survey also revealed that builders’ use of sales incentives has declined because the “market has firmed and resale inventory options remain limited.” In July, 22% of builders report cutting prices, down from 25% in June and 27% in May.

Individual components

• The HMI index gauging current sales conditions in July rose one point to 62
• The component charting sales expectations in the next six months fell two points to 60
• The gauge measuring traffic of prospective buyers increased three points to 40, the highest reading since June 2022.

Looking at the three-month moving averages for regional HMI scores, the:

• Northeast increased five points to 52
• Midwest edged up two points to 45
• South increased three points to 58
• West posted a five-point gain to 51

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

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