Mortgage News May 24, 2023
In May, home builders’ optimism regarding the market for newly built homes grew further, driven in part by the scarcity of pre-owned homes available for purchase. According to the National Association of Home Builders (NAHB), the NAHB/Wells Fargo Housing Market Index, a gauge of builder confidence, surged by 5 points to reach 50. This marks the fifth consecutive month of increased confidence and the first instance since July 2022 that the index has reached its midpoint.
According to Robert Dietz, the chief economist of the NAHB, the role of new home construction has become more prominent in the market due to a growing number of homeowners, who have mortgages with interest rates lower than the current rates, choosing to stay in their current homes. As a result, the supply of existing homes remains exceptionally low. Around 33 percent of the homes available for purchase in March consisted of newly constructed properties in different phases of completion. This percentage is significantly higher than the average of 12.7 percent observed from 2000 to 2019. With limited housing inventory available, prospective buyers will continue to rely significantly on new construction in their search for housing in the upcoming months.
Despite the growing optimism, builders are exercising caution due to persistent challenges in the industry. Apart from the scarcity of building materials, with transformers being specifically highlighted by Dietz, builders are also facing tightened conditions for construction and development loans, further hindering their operations.
The NAHB/Wells Fargo HMI, based on a monthly survey spanning over 35 years, evaluates builders’ perceptions of current single-family home sales and their expectations for sales in the next six months, categorized as “good,” “fair,” or “poor.” The survey also assesses potential buyer activity levels, categorized as “low to very low,” “average,” or “high to very high.” These ratings contribute to calculating a seasonally adjusted index, with a value above 50 indicating favorable conditions for builders.
In May, all three significant indices of the HMI demonstrated positive progress. The index evaluating current sales conditions increased by 5 points, reaching a value of 56. Additionally, the component measuring sales expectations for the next six months surged by 7 points, reaching a value of 57. Furthermore, the gauge assessing the traffic of potential buyers observed a 2-point improvement, reaching a value of 33.
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