More Housing Inventory Coming? Home Builder Confidence Grows Again

Home builders are feeling optimistic

The supply of for-sale housing, and lack thereof, is perhaps the biggest detriment to home buyers today.

Due to its cascading effect, the inventory scarcity drives up competition and then, prices. But could help be on the way?

It’s beginning to look like it, as a leading indicator of housing inventory has pointed upwards for four straight months and reached a eight-month high.

Housing Market Index improves

Every month, the National Association of Home Builders (NAHB) and Wells Fargo survey NAHB members for their Housing Market Index (HMI) report. The survey gets a general sense of the single-family-home environment by covering three components — current home sales, home sales over the next six months and traffic of prospective buyers — and is measured on a 0-100 scale.

With mortgage rates expected to decrease throughout the year behind Fed cuts, the HMI climbed to a score of 51 in March from 48 in February and 44 the year prior. That marks the highest HMI grade — and last time it surpassed the halfway point — since July 2023. Further, with those projected Fed cuts anticipated, NAHB predicts a 5% annual growth in single-family housing starts for 2024.

“Buyer demand remains brisk and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year,” said NAHB Chairman Carl Harris. “But even though there is strong pent-up demand, builders continue to face several supply-side challenges, including a scarcity of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of building homes.”

All three index components experienced monthly and annual gains as well. Current sales rose to 56 from scores of 52 in February and 49 in March 2023. Sales in the next six months went to 62 from 60 and 47, while prospective home buyer traffic increased to 34 from 32 and 31.

Broken down regionally, home builders in the Northeast had the most optimism with a score of 61. That fell from 62 in February and grew from 46 in March 2023. Next came an HMI of 52 in the South, up from 50 and 50. The Midwest’s 49 grew from scores of 38 and 36, while the West’s 45 went down and up from 47 and 36.

What other indicators of housing inventory say

In February, active home listings increased 14.8% annually, marking the fourth straight month of year-over-year gains, according to Realtor.com. However, that total dipped 0.3% from January.

Among the 50 largest cities in the U.S., Orlando, Fla., saw a 38.5% yearly jump in active listing count, trailed closely by in-state counterparts Miami (37.4%) and Tampa 36.3%. Las Vegas experienced the biggest annual decline, falling 39.3%. Then came decreases of 13.4% in Chicago and 12.8% in San Jose, Calif.

Looking ahead, the Census Bureau and Department of Housing and Urban Development put out a joint Monthly New Residential Construction Report, with three leading indicators of housing inventory.

First, building permits hit a seasonally adjusted annual rate (SAAR) of 1.518 million in February. That figure grew 1.9% month-over-month and 2.4% from February 2023.

Next, housing starts reached a SAAR of 1.521 million, increasing 10.7% monthly and 5.9% annually. Lastly, a SAAR 1.729 million houses were completed in February, surging 19.7% from January and 9.6% year-over-year.

“The solid level of single-family production in February tracks closely with rising builder sentiment, and with mortgage rates expected to moderate further this year, this will provide an added boost for single-family building. But policymakers need to help the industry’s supply-chains in order to protect housing affordability and add much needed supply to boost inventory,” Harris said.

The bottom line for home buyers

Between low affordability and not enough listings, 2024 projects to be a competitive year for prospective home buyers.

If you’re a house hunter, it’ll be helpful to grab every advantage you can. Always be prepared so you can move fast, negotiate your mortgage rate, and see if you qualify for down payment and/or closing cost assistance.

If you’re ready to take the next step to homeownership, reach out to a local mortgage professional.