Builder confidence in the market for newly built single-family homes jumped in May as continued inventory shortages boosted homebuilder optimism, despite higher construction costs and interest rates, the National Association of Home Builders reported.      

Specifically, the NAHB/Wells Fargo Housing Market Index (HMI) rose five points to 50, the first time the index has hit the midway point since July 2022 and the fifth monthly increase in a row. Any number over 50 indicates that more builders view conditions as “good,” rather than “poor.”   

“New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” NAHB Chief Economist Robert Dietz said in a press release, noting that in March, 33% of homes for sale were new, compared to a historical average of 12.7% from 2000 to 2019. “With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.” 

The share of builders reducing home prices slid to 27% in May from 30% in April. The average price reduction in April was 6%, the same as the previous four months. Meanwhile, the share of builders using incentives to bolster sales fell to 54% from 59% in April and 62% in December 2022.  

The HMI is made up of three components, all of which rose in May. The component gauging current sales conditions rose five points to 56, and the gauge measuring sales expectations in the next six months surged seven points to 57, and the component measuring traffic of prospective buyers rose two points to 33.   

Regionally, the three-month moving average for regional HMI scores rose two points to 39 in the Midwest, rose three points to 52 in the South and increased three points to 41 in the West. It was flat at 45 in the Northeast.