Will 2023 mark the end of this turbulent real estate market?
New home builders seem to think so. After 12 straight month-over-month declines in builder confidence, the trend seems to be reversing course, according to the latest reading of the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The HMI recorded its second consecutive month of builder confidence gains with a score of 72 for February, the strongest reading since September 2022.
Builder confidence is an important real estate market predictor because it reflects the sentiment and expectations of professionals directly involved in the home construction industry. Builders are on the front lines of the housing market and have direct insight into factors such as land availability, material costs, and labor availability, which are critical to their business.
Builders are feeling positive about new home sales and the potential for a more normal and healthy housing market. This contrasts with last year, which saw a surge in demand for existing homes due to the pandemic and supply chain disruptions that affected the new home construction market.
Builders are cautiously optimistic about the future as they continue to face challenges such as rising materials costs and shortages of labor and land. However, the positive sentiment among builders is a good sign for the overall health of the housing market and could potentially lead to an increase in new home construction in the coming months.
New vs. Existing Homes
In rising-rate environments, homeowners are disincentivized to sell, exacerbating the housing shortage. New construction homes are attempting to fill the gap created by the lack of available inventory in the existing home space. Price adjustments and builder incentives are helping to drive this trend.
Overall, builder confidence is an important real estate market predictor because it provides valuable insight into the health of the housing market from the perspective of industry professionals who are intimately familiar with the industry's challenges and opportunities.
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