U.S. homebuilder sentiment unexpectedly rose in May to the highest level in 10 months as limited supply continued to drive prospective buyers toward new construction.
The National Association of Home Builders/Wells Fargo gauge jumped five points to 50, extending a streak of increases to five months, figures showed Tuesday. Even with the recent improvement, the gauge is well below levels seen at the end of 2021, when mortgage rates were much lower.
“Lack of existing inventory continues to drive buyers to new construction,” Robert Dietz, NAHB chief economist, said in a statement. “With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”
Measures of current sales and sales expectations rose to the highest level since the summer. A gauge of prospective buyer traffic also edged up to a 10-month high.
The share of builders reducing home prices declined, as did the percentage of firms using incentives to attract buyers, suggesting demand has recovered somewhat. That’s happening as easing mortgage rates increasingly allow prospective buyers to come back into the market after a tumultuous year for residential real estate.
That’s good news for homebuilders who have largely benefited from a limited supply of existing homes that’s pushing demand into the new-home market. Builders are still working through pandemic-era backlogs, and one-third of homes listed for sale in March were new projects in various stages of construction, according to Dietz. That’s almost three times above the average over the past decade, he said.
April housing starts and building permits data are due Wednesday, and will be followed later in the week by existing-home sales.