Low Resale Home Inventory Increases New Home Demand

April 18, 2023

According to the National Association of Home Builders report for March, builders remained cautiously optimistic in April as limited resale inventory helped to increase demand in the new home market.

Builder confidence in the market for newly built single-family homes in April rose one point to 45, according to the (NAHB)/Wells Fargo Housing Market Index (HMI).

“For the fourth straight month, builder confidence has increased due to a lack of resale inventory despite elevated interest rates,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “Builders note that additional declines in mortgage rates, to below 6%, will price-in further demand for housing.”

According to Realtor.com, home sellers were less active during March, with 20.1% fewer homes being listed for sale compared to last year. Homes spent 54 days on the market, which is 18 days longer than last year (but still shorter than before the pandemic). Compared to March 2022, fewer homes went under contract during March 2023.

Building material supply issues continue, now including access to electrical transformer equipment. The electrical transformer shortage is nationwide, which could delay new housing developments.

Transformers are needed to connect homes to power lines and deliver electricity.

Still, buyers seem to be shifting their focus from resale homes to new homes, according to NAHB Chief Economist Robert Dietz.

“Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%,” Dietz said. “More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023.”

The HMI survey shows that the share of builders reducing home prices continues trending down, as 30% said they reduced prices in April, compared to 31% in March and February, 35% in December and 36% in November.

The average price reduction in April was 6%, the same as in February and March but lower than in December (8%). The share of builders using incentives to bolster sales has edged up from 57% in February, to 58% in March to now 59% in April, but it’s still lower than it was last December (62%).

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”

Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI index gauging current sales conditions in April rose two points to 51 and the component charting sales expectations in the next six months increased three points to 50. This marks the first time these components both returned to the 50+ range since June 2022. The gauge measuring traffic of prospective buyers remained unchanged at 31. This is the first time the traffic component failed to improve in 2023.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose four points to 46, the Midwest edged up two points to 37, the South increased four points to 49 and the West moved four points higher to 38.

Image: Depositphotos

This article, “Low Resale Home Inventory Increases New Home Demand” was first published on Small Business Trends



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