Homebuilder sentiment in the United States unexpectedly increased in May, reaching its highest point in the past 10 months. The rise can be attributed to the ongoing scarcity of available homes, which has led potential buyers to consider new construction as an alternative.
According to data released on Tuesday, the National Association of Home Builders/Wells Fargo index surged by five points to reach 50. This marks the fifth consecutive month of improvement; however, it is important to note that the current level of the index remains significantly lower than what was observed towards the end of 2021, a period characterized by lower mortgage rates.
According to a statement by Robert Dietz, Chief Economist of the National Association of Home Builders (NAHB), the scarcity of existing housing inventory is persistently pushing buyers towards new construction. Dietz highlighted that with the limited availability of homes on the market, new construction will remain a substantial component of prospective buyers’ search in the upcoming quarters.
Indicators measuring current sales and sales expectations have reached their highest levels since the summer, while the gauge of prospective buyer traffic has also risen to a 10-month peak.
There has been a decline in the proportion of builders reducing home prices, as well as a decrease in the percentage of firms resorting to incentives to attract buyers. These trends suggest that demand has shown signs of recovery. Moreover, the easing of mortgage rates is enabling prospective buyers to reenter the market after a turbulent year for the residential real estate sector.
This development brings positive implications for homebuilders, as they have been greatly advantaged by the scarcity of existing homes, which has fueled demand for new homes. Builders are still addressing the backlog created during the pandemic, with approximately one-third of homes listed for sale in March being new projects at different stages of construction, as reported by Dietz. This figure is nearly three times higher than the average observed over the past ten years.
The data on housing starts and building permits for April is scheduled to be released on Wednesday, followed by existing-home sales later in the week.