Although the latest HMI is optimistic, the NAHB points out that builders continue to battle high construction costs and supply chain issues when it comes to materials.
The association also said the most challenging part of the home building market remains the construction of more affordable entry-level homes.
Huey said the NAHB is calling on policymakers to “help by reducing the cost of developing lots and building homes via regulatory reform.”
Last week, NAHB leadership met with Congress to discuss why housing affordability has remained problematic.
As the average 30-year fixed rate mortgage rate peaked at 7.08% in October 2022, according to Freddie Mac, rates declined to approximately 6.1% at the start of February 2023. But the 10-year Treasury rate has moved up more than 30 basis points during the past two weeks, indicating another increase for mortgage rates lies ahead, the NAHB said.
“While the HMI remains below the breakeven level of 50, the increase from 31 to 42 from December to February is a positive sign for the market,” said NAHB Chief Economist Robert Dietz. “Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle. And while we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024.”
Additional data provided by the NAHB indicates that builders continue to offer a variety of incentives to attract buyers during the housing downturn.
Here are a few of the indicators the NAHB reported that show signs of housing stabilizing off a cyclical low:
- 31% of builders reduced home prices in February, down from 35% in December and 36% in November.
- The average price drop in February was 6%, down from 8% in December, and tied with 6% in November.
- 57% offered some kind of incentive in February, down from 62% in December and 59% in November.
All three HMI indices posted gains for the second consecutive month. The HMI index gauging current sales conditions in February rose six points to 46, the component charting sales expectations in the next six months increased 11 points to 48 and the gauge measuring traffic of prospective buyers increased six points to 29.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose four points to 37, the Midwest edged one-point higher to 33, the South increased four points to 40 and the West moved three points higher to 30.
HMI tables can be found at nahb.or/hmi.