But they still have to get creative with incentives and price reductions to bolster sales
Homebuyers’ increased appetite for new homes boosted builder sentiment in April as the industry continues to grapple with limited supply.
Builder confidence in the market for newly-built single-family homes increased for the fourth month in a row, up one point to 45 in April, data from the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed.
NAHB chairman Alicia Huey attributed the gain to a lack of resale inventory despite elevated interest rates. Consecutive drops in interest rates have spurred mortgage application activity in recent weeks, according to the Mortgage Bankers Association.
“Builders note that additional declines in mortgage rates, to below 6%, will price-in further demand for housing,” Huey said. “Nonetheless, the industry continues to be plagued by building material issues, including lack of access to electrical transformer equipment.”
The HMI survey revealed that 30% of builders reduced home prices in April, down from 31% in March and 35% in December. The average price cut in April was 6%, the same as in February and March but lower than in December (8%). Builders also continued to use incentives to increase sales, up from 57% in February, to 58% in March, to 59% in April, but that’s still lower than December (62%).
“Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%,” NAHB chief economist Robert Dietz added. “More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023. And while AD&C loan conditions are tight, there is not significant evidence thus far that pressure on the regional bank system has made this lending environment for builders and land developers worse.”
The HMI index gauging current sales conditions in April climbed two points to 51, and the component charting sales expectations in the next six months rose three points to 50 – marking the first time these components both returned to the 50+ range since June 2022. However, the gauge measuring traffic of prospective buyers failed to improve, remaining unchanged at 31.
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