Buyer Demand Provides Modest Boost to Builder Confidence

New home builders seem to be slowly getting their mojo back. After recovering from the hit they took in the first days of the pandemic, they encountered labor shortages, supply chain issues, and rising material costs. The National Association of Home Builders (NAHB) said that builder confidence in the new home market, driven by strong buyer demand, ticked up slightly this month with the NAHB/Wells Fargo Housing Market Index (HMI) rising 1 point to 83. It is still down by 7 points from the all-time high it reached in November.

Robert Dietz, NAHB's chief economist, said builders continue to face challenges in order to add much needed new homes to the market. While mortgage interest rates have trended higher since February and home prices continue to outstrip inflation, housing demand appears to be solid for now as buyer traffic reached its highest level since November. NAHB's forecast is for ongoing growth in single-family construction in 2021, albeit at a lower growth rate than realized in 2020.

The HMI is derived from a monthly survey that NAHB has been conducting for 35 years. It gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor" and 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.

Current sales conditions were rated at 88, up 1 point from March and the gauge charting traffic of prospective buyers posted a 3-point gain to 75. The component measuring sales expectations in the next six months fell 2 points to 81.

Regional responses are presented as three-month moving averages. The Northeast rose 6 points 86 and the South moved up 1 point to 83. The West held steady at 90 and the Midwest fell 2 points to 78.