Lower rates are helping to boost builder confidence

by Steve Randall16 May 2019

Builder confidence in the market for newly-built single-family homes has been boosted by improvement in the labor market and lower mortgage rates.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) reported a rise of 3 points in May to a reading of 66, the strongest its been since October 2018.

All three components of the index gained, led by a 3 point rise for current conditions. Expectations for the next 6 months rose 2 points and buyer traffic was up 1 point.

“Mortgage rates are hovering just above 4 percent following a challenging fourth quarter of 2018 when they peaked near 5 percent. This lower-interest rate environment, along with ongoing job growth and rising wages, is contributing to a gradual improvement in the marketplace,” said NAHB Chief Economist Robert Dietz.

The 6-month rolling index shows increases for all four of the major regions, led by the Northeast with a 6-point gain to 57, while the West increased 2 points to 71, the Midwest gained 2 point to 54, and the South rose a single point to 68.

“Builders are busy catching up after a wet winter and many characterize sales as solid, driven by improved demand and ongoing low overall supply,” said NAHB Chairman Greg Ugalde. “However, affordability challenges persist and remain a big impediment to stronger sales.”

Affordability challenges continue
The cost of building homes is still a major factor in constraining the ability of builders to meet homebuyers’ demand.

“Builders continue to deal with ongoing labor and lot shortages and rising material costs that are holding back supply and harming affordability,” added Dietz.

These costs will continue to challenge the market with NAHB’s figures showing that, despite some improvement from the end of 2018 when mortgage rates were higher, affordability was roughly the same in the first quarter of 2019 as it was a year earlier.

It found that 61.4% of new and existing homes sold between the beginning of January and end of March were affordable to families earning the US median income of $75,500; a year earlier the figure was 61.6%.