U.S. homebuilder sentiment edges up in May

The National Association of Home Builders said on May 18 that builder confidence in the market for newly built single-family homes rose three points to 37 in May, an unexpected improvement after April’s decline. The reading remained below 50 for a 25th straight month, meaning more builders still viewed conditions as poor than good, according to the NAHB/Wells Fargo Housing Market Index. NAHB said buyers were still contending with higher mortgage rates and economic uncertainty, while builders faced elevated land, labor and construction costs. Reuters reported the broader mood remained subdued as the war in Iran added inflation pressure and pushed up material costs and borrowing rates for buyers. ### What exactly improved in May’s builder survey? The May index rose to 37 from 34 in April, NAHB said, with all three major components posting gains. Current sales conditions increased to 40, expected sales over the next six months rose to 45, and traffic of prospective buyers climbed to 25. The survey is based on builder responses about present sales, expected sales and buyer traffic, with any reading above 50 indicating that more builders see conditions as good than poor. (nahb.org) The Midwest posted a three-month moving-average reading of 43 and the Northeast 42, while the South was 35 and the West 28, according to NAHB. Robert Dietz, NAHB’s chief economist, said some regional markets, including parts of the Midwest, were showing relative strength even as affordability challenges persisted. (nahb.org) ### Why are builders still describing the market as soft? Bill Owens, NAHB’s chairman and a builder and remodeler from Worthington, Ohio, said “higher mortgage rates, rising gas prices and economic uncertainty related to the war in Iran” were continuing to dampen buyer demand. Dietz said recent increases in long-term interest rates would keep holding back homebuyer demand. Reuters said the conflict in Iran was stoking inflation pressures that were lifting costs from building materials to mortgage rates. (nahb.org) The latest survey also pointed to continued discounting. NAHB said 32% of builders cut prices in May, down from 36% in April, while the average price reduction widened to 6% from 5%. The share of builders using sales incentives edged up to 61% from 60%, marking the 14th consecutive month in which at least 60% used incentives. (nahb.org) ### Are builders seeing any sign that buyers are returning? NAHB said some buyers who had been holding back decided to move forward this spring, helping lift all three survey components in May. CNBC separately reported that fewer builders were cutting prices than a month earlier, even though the average rate on a 30-year fixed mortgage was 6.65%, citing Mortgage News Daily. That suggests the improvement came with borrowing costs still elevated, not after a clear easing in financing conditions. (nahb.org) ### How does this fit with the latest construction data? March housing starts had surged to the highest level in more than a year, according to reporting cited in the source briefing, while permits fell sharply. Census Bureau data pages show building permits and housing starts are published together in the monthly New Residential Construction release. NAHB’s starts-and-permits page also frames those series as the next key read on single-family and multifamily activity. (nahb.org) ### What should readers watch next this week? The National Association of Realtors said pending home sales for April were scheduled for release on Tuesday, May 19, at 10 a.m. Eastern. The U.S. Census Bureau’s release schedule shows preliminary building permits are issued with the New Residential Construction report, and market calendars list the next April permits and housing-starts release for Thursday, May 21. Those reports will provide the next official read on contract activity and new-home supply. (census.gov) (nar.realtor)