Homebuilder Confidence Perks Up as Congress Eyes Housing Reform Package

Homebuilder sentiment perked up in May as the market for new single-family homes improved and a bill aimed at boosting housing supply gained traction in Congress.

Confidence in sales conditions, expectations for the next three months, and buyer traffic all increased this month, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

The index improved three points to 37 for the month. But the gauge, which rates builder confidence from a scale of 0 to 100, still remains firmly in bearish territory.

Builders have been largely cautious this year. The index fell to 38 points in March, then 34 points in April. Even amid the typically busy spring buying season, builders are worried about inflationary pressures on the market, driven by the conflict in Iran and a rise in oil prices.

"The housing market remains soft as higher mortgage rates, rising gas prices, and economic uncertainty related to the war in Iran continue to dampen buyer demand," said NAHB Chairman Bill Owens. "However, efforts in the House to modify the 21st Century ROAD to Housing Act could increase the nation’s housing supply and help ease builder concerns."

This data comes in the same month that the  U.S. Census Bureau and Department of Housing and Urban Development reported an increase in sales in February and March. While the census data lags the NAHB index, current and future expectations that buyers are looking for homes play into builder sentiment.

Spring sales boost builder confidence

Builder confidence varies by region, with the Northeast and Midwest sitting at 44 and 45 on the 100-point scale. In both areas, builder sentiment was a stronger rebound from a score of 39 that NAHB reported last month.

The South stayed at 36, and has remained in the mid-30s for about a year. The West continues to lag, with a confidence score of 27.

But the overall low score extends a trend. Homebuilder confidence has now been at or below 40 for 15 months. And it hasn't been above 50 since April 2024.

NAHB Chief Economist Robert Dietz noted worries from interest rates, which impact mortgage rates. Even with a new Fed chair in place, there are strong signs that rates won't becoming down any time soon.

“Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges," Dietz said. The NAHB found some buyers who were holding back earlier this year are jumping into the market.

While 32% of builders reported they cut prices in May, down from 36% in April, those cuts are bigger. The average price reduction increased from 5% to 6% month over month. May was the 14th month in a row that over 60% of builders reported using sales incentives.

Owens also noted optimism about the 21st Century Road to Housing Act, a wide-ranging housing reform package that Congress will take up this week. The NAHB supports that bill, which has several provisions aimed at reducing regulations and cutting the costs of home construction.

There is hope this week that a controversial ban on institutional investors in the housing market could be changed or removed. Worries over that provision have chilled a segment of the construction market.