Builder confidence saw a modest bump in May, but affordability challenges continue to weigh heavily on the housing market, according to new survey from the National Association of Home Builders.
The NAHB/Wells Fargo Housing Market Index, which gauges builder perceptions of current single-family home sales and sales expectations for the next six months, increased three points to 37 in May. The survey asks builders to also rate traffic of prospective buyers and scores are then used to calculate a seasonally adjusted index. Even with the gain, the index remains below the 50-point mark, which indicates more builders view conditions as poor than good.
“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 in the release. “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.”
NAHB Chief Economist Robert Dietz said affordability remains one of the industry’s biggest obstacles, even as some regions show signs of stability.
“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 survey found that 32% of builders cut home prices in May, down from 36% in April. At the same time, 61% reported using sales incentives, marking the 14th consecutive month that figure has stayed at or above 60%. The average price reduction increased to 6% from 5% the month before.
All three major components of the Housing Market Index improved in May. The index measuring current sales conditions rose to 40 from April to May, future sales expectations increased to 45 and traffic from prospective buyers climbed to 25.
Regionally, the Midwest posted a one-point gain to 43, while the Northeast also rose one point to 42. The South remained flat at 35 and the West slipped one point to 28.