Housing Market Index Hits Eleven-Month High

The National Association of Home Builders (NAHB)/Wells Fargo housing market index (HMI) was 55 for the month of June. That was the highest number so far this year and the first time that number went above 50 since July 2022. (Indexes above 50 indicate a positive outlook).

In addition, the index saw six straight months of gains. The NAHB attributed the rising confidence in homebuilders to a competitive housing market in which there is a greater demand for houses despite a shrinking inventory and improvements in the supply chains.

“Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains,” NAHB Chairman Alicia Huey said in a statement. “However, access for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows.”

The increase in the HMI has also resulted in home builders offering fewer sales incentives to prospective buyers. In June, only 25% of builders lowered their home prices, compared to 27% the previous month, 30% in April and a peak of 36% in November 2022. Builders cut their prices by 7% in June, which is less than the 8% reduction in December 2022.

The NAHB also saw monthly gains for current sales conditions and sales expectations in the next six months. The index for current sales conditions went from 56 in May to 61 in June. Sales expectations in the next six months improved in June to 62 from 56 in May. 

This could be prodded by reports from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development that housing starts in May were up 21.7% month over month to a seasonally adjusted annual rate (SAAR) of 1.63 million units and new home sales rose 12.2% to a SAAR of 763,000 — the highest level since February 2022.

“Demand for new homes is strengthening because of a lack of existing home inventory,” Huey said.

“The lack of resale homes available for sale, at just a three months’ supply, is supporting demand for newly built homes,” added NAHB Chief Economist Robert Dietz.