Home builders turn bullish for the first time in nearly a year amid strong housing demand

The numbers: For the first time in nearly a year, home builders are upbeat about the housing market outlook.

The shortage of previously-owned sales is helping to buoy builders’ confidence. 

With mortgage rates above 6%, many homeowners find little incentive to sell—nearly 92% have an outstanding mortgage with a rate below 6%, according to a recent survey conducted by Redfin
a brokerage and real estate listings company. And 23.5% of homeowners have a mortgage rate of less than 3%. Consequently, the number of new home listings has dropped by 22%, as compared with the same period a year ago, according to a Realtor.com housing trends report.

In turn, home builders are feeling good about their business. The National Association of Home Builders’ (NAHB) monthly confidence index rose 5 points to 55 in June, the trade group said Monday.

This is the sixth month in a row that sentiment has improved among builders. It is also the first time in 11 months that builder confidence has moved into positive territory of above 50.

The June reading of 55 was the strongest since July 2022. A year ago, the index stood at 67.

Key details: Builders were starting to pull back on sales incentives. The share of builders cutting prices to boost sales has dropped to 25% in June, from a peak of 36% in November 2022.

The typical builder was cutting prices by 7% in June, the NAHB said.

The three gauges that underpin the overall builder-confidence index were up.

  • A reading on current sales conditions rose by 5 points. 

  • A measure on future sales gained 6 points.

  • A gauge of traffic of prospective buyers rose by 4 points. 

Big picture: Due to pandemic-era monetary policies that depressed mortgage rates, the home buyers, real-estate agents, mortgage brokers and the rest of the industry are stuck trying to find solutions to a major supply crunch of homes.

Builders seem to be one of the few participants who have benefited from the supply crunch, given the nature of their business of new construction. The homebuilder ETF,
is up 25% year-to-date. 

What the NAHB said: “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” Robert Dietz, chief economist at the NAHB, wrote.

And with the “Federal Reserve nearing the end of its tightening cycle,” the statement read, it’s “good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

Markets were closed on Monday in observance of the Juneteenth holiday.

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