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Lack of Existing Inventory Boosts U.S. Builder Confidence in May

Lack of Existing Inventory Boosts U.S. Builder Confidence in May

Residential News » Washington D.C. Edition | By WPJ Staff | May 17, 2023 8:14 AM ET


The National Association of Home Builders reported this week that limited existing U.S. housing inventory, which has put a renewed emphasis on new construction, resulted in a solid gain for builder confidence in May 2023. This comes as the industry continues to face several challenges, including building material supply chain disruptions and tightening credit conditions for construction loans.

Builder confidence in the market for newly built single-family homes in May rose five points to 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This marks the fifth straight month that builder confidence has increased and is the first time that sentiment levels have reached the midpoint mark of 50 since July 2022.

"New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level," said NAHB Chairman Alicia Huey. "While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction. These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates."

"Lack of existing inventory continues to drive buyers to new construction," said NAHB Chief Economist Robert Dietz. "In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers' search in the quarters ahead."

And with interest rates more than doubling from 2021, the HMI survey shows incentives have played a key role in attracting buyers in this new economic climate and that the use of these sales inducements are gradually slowing across the board:

  • The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in Feb. and March, and 36% last November.
  • The average price reduction remains at 6%, unchanged for the past four months.
  • 54% offered some type of incentive to bolster sales in May, down from 59% in April and 62% last December.


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