Homebuilders are more confident about the housing market amid softening mortgage rates and limited supply.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose three points to 51 in March, marking the fourth consecutive month that sentiment gained and the highest level since July 2023. Economists polled by Bloomberg were anticipating a reading of 48.
The March reading is the first time that the sentiment level broke past 50 since last July. Any number over 50 indicates that more builders view conditions as good than poor.
The bump in builder sentiment reflects how many buyers are considering new builds due to a lack of supply in the existing home market. It also comes amid investor expectations that the Federal Reserve will cut rates later this year, which would consequently lower financing costs for potential buyers. The Fed will issue its next interest rate decision on Wednesday.
While mortgage rates have mostly been on the rise this year, the average rate on the 30-year fixed mortgage fell to 6.74% last week from 6.88% the week prior, according to Freddie Mac.
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“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” said NAHB chief economist Robert Dietz. “However, as home building activity picks up, builders will likely grapple with rising material prices, particularly for lumber.”
In March, builders slightly pulled back on cutting home prices, as 24% of builders reported cutting home prices, down from 36% in December and the lowest share since July.
Meanwhile, the use of sales incentives remains steady. The share of builders offering some form of incentive in March was 60%, and this has remained between 58% and 62% since last September.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.