In April, there was a slight increase in the index that gauges the optimism of new home builders towards the demand for their product. The NAHB revealed that due to the scarcity of pre-owned homes available for sale, the NAHB/Wells Fargo Housing Market Index (HMI) has increased by 1 point to 45.
According to Robert Dietz, the chief economist of NAHB, the current housing inventory comprises approximately one-third of new construction, which is significantly higher than the historical average of just over 10%. The increased interest of buyers in new homes and the implementation of sales incentives have been contributing factors to the growth in new home sales since the beginning of 2023.
Each month, the HMI is determined through a survey that assesses the opinions of new home builders on the current state of single-family home sales and their sales expectations for the next six months. In the survey, builders categorize the conditions as “good,” “fair,” or “poor,” and rate the volume of prospective buyers as “high to very high,” “average,” or “low to very low.” A seasonally adjusted index is computed based on the individual scores of each element, and a score exceeding 50 signifies that the builders hold a favorable perception of the conditions.
The index that evaluates present sales conditions increased by two points, reaching 51, and the component that measures the sales outlook for the next six months surged by three points, achieving 50. This is the first instance since June 2022 that both of these components have surpassed the 50-point threshold. The indicator that tracks the volume of potential buyers, however, did not improve and remained steady at 31, making it the first time in 2023 that this index did not see any progress.
According to Dietz, the April survey shows that fewer builders are decreasing home prices, with 30% stating so compared to previous months. The average price reduction remained steady at 6%, and sales incentives use is increasing, with 59% of builders offering inducements. Regional HMI scores for the Northeast, South, and West increased by 4 points, while the Midwest rose by 2 points.