Realtors will tell you: The available inventory of existing homes hitting the market is low.

Builders will tell you: That’s one of the reasons the demand for new homes is high.

Realtors and Builders will tell you: We are wrestling with rising mortgage rates.

Despite the pinches of rising mortgage rates, elevated construction costs and limited lot availability, builders’ confidence continues to increase.

Home Builder Confidence Trending Up

Builder confidence in the market for newly built single-family homes in July posted a one-point gain to 56, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released July 18. It’s the seventh straight month that builder confidence has increased, and it’s the highest level since June of last year.

Builders Pulling Back from Using Sales Incentives

The July HMI survey also revealed that despite elevated interest rates, builders’ use of sales incentives has declined, as the market has firmed up and resale inventory options remain limited. Only 22% of builders report cutting prices in July. This is down from 25% in June and 27% in May.

The HMI index gauging current sales conditions in July rose one point to 62, the component charting sales expectations in the next six months fell two points to 60, and the gauge measuring traffic of prospective buyers increased three points to 40, the highest reading since June of last year.

However, the decline for the future sales expectation reading is a reminder that housing affordability continues to be challenged by elevated interest rates.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased five points to 52, the Midwest edged up two points to 45, the South increased three points to 58 and the West posted a five-point gain to 51.

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