More Housing Inventory Coming? Home Builder Confidence Grows Again

Home builders are feeling optimistic

The supply of for-sale housing, and lack thereof, is perhaps the biggest detriment to home buyers today.

Due to its cascading effect, the inventory scarcity drives up competition and then, prices. But could help be on the way?

It’s beginning to look like it, as a leading indicator of housing inventory has pointed upwards for three straight months and reached a six-month high.

Housing Market Index improves

Every month, the National Association of Home Builders (NAHB) and Wells Fargo survey NAHB members for their Housing Market Index (HMI) report. The survey gets a general sense of the single-family-home environment by covering three components — current home sales, home sales over the next six months and traffic of prospective buyers — and is measured on a 0-100 scale.

With mortgage rates expected to decrease throughout the year behind Fed cuts, the HMI climbed to a score of 48 in February from 44 in January and 42 the year prior. That marks the highest HMI grade since August 2023. Further, with those projected Fed cuts anticipated, NAHB predicts a 5% annual growth in single-family housing starts for 2024.

“Mortgage rate reductions, or at least the signaling of future reductions, are providing relief to prospective buyers across the country,” said Alex Toth, head of business development at Opendoor. “As home prices become more affordable, even if just slightly, buyers are capitalizing on the opportunity to purchase. With the Fed signaling they may slash rates again this year – potentially even during the popular spring homebuying season – many builders may maintain their positive outlook.”

All three index components experienced monthly and annual gains as well. Current sales rose to 52 from scores of 48 in January and 47 in February 2023. Sales in the next six months went to 60 from 57 and 48, while prospective home buyer traffic increased to 33 from 29 and 28.

“Overall, the uptick in positive builder sentiment is a good sign for the health of the housing market, as it’s directly correlated to a rise in or a projected rise in new home sales,” Toth said.

Broken down regionally, home builders in the Northeast had the most optimism with a score of 62. That jumped from 55 in January and 46 in February 2023. Next came an HMI of 50 in the South, up from 49 and 46. The West’s 47 grew from scores of 38 and 37, while the Midwest’s 38 inched up from 35 and 36.

What other indicators of housing inventory say

In February, active home listings increased 14.8% annually, marking the fourth straight month of year-over-year gains, according to Realtor.com. However, that total dipped 0.3% from January.

Among the 50 largest cities in the U.S., Orlando, Fla., saw a 38.5% yearly jump in active listing count, trailed closely by in-state counterparts Miami (37.4%) and Tampa 36.3%. Las Vegas experienced the biggest annual decline, falling 39.3%. Then came decreases of 13.4% in Chicago and 12.8% in San Jose, Calif.

Looking ahead, the Census Bureau and Department of Housing and Urban Development put out a joint Monthly New Residential Construction Report, with three leading indicators of housing inventory.

First, building permits hit a seasonally adjusted annual rate (SAAR) of 1.47 million in January. While that figure edged down 1.5% month-over-month, it increased 8.6% from January 2023.

Next, housing starts reached a SAAR of 1.331 million, decreasing 14.8% monthly and 0.7% annually. Lastly, a SAAR 1.416 million houses were completed in January, falling 8.1% from December but rising 2.8% over January 2023.

The bottom line for home buyers

Between low affordability and not enough listings, 2024 projects to be a competitive year for prospective home buyers.

If you’re a house hunter, it’ll be helpful to grab every advantage you can. Always be prepared so you can move fast, negotiate your mortgage rate, and see if you qualify for down payment and/or closing cost assistance.

If you’re ready to take the next step to homeownership, reach out to a local mortgage professional.