Sentiment among US homebuilders climbed to an eight-month high in March as a limited number of existing homes for sale and mortgage rates that are down from their peak spurred demand.
The National Association of Home Builders/Wells Fargo index of housing market conditions increased by 3 points to 51, according to data released Monday. The median estimate in a Bloomberg survey of economists called for a reading of 48.
Builder sentiment has been improving so far this year, though it’s still well below prepandemic levels. A measure of expected sales in the next six months rose to 62, the highest since June. Gauges of prospective buyer traffic and current sales advanced to seven-month highs, NAHB data showed.
Even with the recent pickup, builder sentiment may remain below its longer-term average until borrowing costs fall more significantly, and the Federal Reserve has delayed cutting interest rates because of stubborn inflation. Before the pandemic, builder sentiment was in the 70s and it peaked at 90 in the frenzied market of late 2020.
“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” Robert Dietz, NAHB chief economist, said in a statement.
In recent months, builders have generally cut back on the price breaks they’ve offered consumers to boost sales. In March, 24% of builders reported cutting prices, down from 36% in December and the lowest share since July.
The share of builders offering customers some form of incentives was 60% in March, and it’s hovered between 58% and 62% since September, the NAHB said.
Builder sentiment rose in the Midwest by 11 points to 49 in March, the most of any region, while also climbing slightly in the South. Sentiment declined slightly in the Northeast and West.
Housing starts
New US home construction bounced back sharply from weather-related weakness at the start of the year as builders benefit from slightly more favorable mortgage rates and a dearth of existing houses for sale.
Residential starts increased 10.7% in February, the largest since May, to a 1.52 million annualized rate, government data showed Tuesday. The median estimate of economists surveyed by Bloomberg called for a 1.44 million pace.
Building permits, a proxy for future construction, rose to a 1.52 million rate, the fastest since August. Both permits and starts figures for January were revised higher.
Single-family home construction increased to a two-year high, while multifamily home starts rose 8.3% after a steep drop the prior month.
After a January slump in starts, which was the largest since May 2022, the rise adds to evidence the housing market is on the mend. Builders are taking advantage of a limited resale inventory, though a bigger decline in mortgage rates would help bring more prospective buyers off the sidelines and provide a bigger boost for the industry.
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