Homebuilder sentiment rises in April, as builders grab near record share of the market

Builder sentiment in the market for newly-built homes rose in April for the fourth straight month, as the supply of existing homes for sale remains scarce.

The National Association of Home Builders/Wells Fargo Housing Market Index rose to 45 in April, a one-point gain. Anything below 50 is considered negative.

The reading is the highest since September. The index stood at 77 in April 2022.

Builders in the report cited a lack of listings on the resale market, which gave them an unusually strong edge. New listings of existing homes have fallen about 25% compared with a year ago.

Slightly lower mortgage rates are also helping demand — though rates are still higher than they were a year ago.

“Builders note that additional declines in mortgage rates, to below 6%, will price-in further demand for housing,” said Alicia Huey, NAHB chairman and a custom home builder and developer from Birmingham, Alabama. “Nonetheless, the industry continues to be plagued by building material issues, including lack of access to electrical transformer equipment.”

The index has three components. Current sales conditions rose 2 points to 51.

Meanwhile, sales expectations in the next six months increased 3 points to 50. It marked the first time both of the indicators were positive since June, when mortgage rates really took off.

Buyer traffic, however, was unchanged at 31. It was the first time it hasn’t improved this year. 

Builders said one-third of housing inventory is new construction, compared with historical norms of around 10%. Concerns had grown that builders might have more trouble with construction loans after recent regional bank failures.

But the bevy of new construction suggests that is not the case.

“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,” said Robert Dietz, NAHB’s chief economist.

Sales incentives by builders, including mortgage rate buy-downs, have been successful in boosting demand in recent months. However, the share of builders reducing home prices is still dropping.

Just under a third of builders reported cutting prices in April, down from 35% at the end of last year.  The average price reduction in April was 6%.

The share of builders using incentives rose slightly to 59% in April from 58% in March. It was still lower than December’s read of 62%.

Regionally, on a three-month moving average, builder sentiment in the Northeast rose 4 points to 46. In the Midwest, it rose 2 points to 37.

In the South, it increased 4 points to 49. In the West, it rose 4 points to 38.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose four points to 46, the Midwest edged up two points to 37, the South increased four points to 49 and the West moved four points higher to 38.