Confidence among builders in the U.S. housing market increased for the seventh straight month in June as limited inventory helped drive demand higher for new homes.
The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose one point to 56, the highest reading since June 2022.
Any reading above 50 is considered positive; prior to 2022, the gauge had not entered negative territory since 2012, excluding a brief – but steep – drop in May 2020.
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Sentiment has been steadily rising as a worsening inventory shortage buoys consumer demand for new homes.
Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell with rates continuing to hover near a two-decade-high, leaving few options for eager would-be buyers other than new homes.
A recent report from Realtor.com showed that the number of available homes on the market in June was down more than 47% from the typical amount before the COVID-19 pandemic began in early 2020.
But builders say the industry continues to grapple with other problems, including high mortgage rates, elevated construction costs and limited lot availability, according to the report.
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"The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers," said Alicia Huey, NAHB chair and a homebuilder from Alabama. "At the same time, builders are troubled over rising mortgage rates approaching 7% and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability."
The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 7% last year, quickly cooling the red-hot housing market. But rates have been slow to retreat from the nearly two-decade high, forcing many would-be buyers out of the market.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.96%, according to Freddie Mac, well above the 5.51% rate recorded one year ago and the pre-pandemic average of 3.9%.
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"Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle," said Robert Dietz, NAHB chief economist.
