Builder confidence in the market for newly built single-family homes posted a modest increase in May as the housing sector continues to navigate affordability pressures, elevated mortgage rates, and ongoing economic uncertainty. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence rose three points to 37 in May.

“The housing market remains soft as higher mortgage rates, rising gas prices and economic uncertainty related to the war in Iran continue to dampen buyer demand,” said NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio. Owens also noted that proposed modifications to the 21st Century ROAD to Housing Act could help increase housing supply and improve builder sentiment.

NAHB Chief Economist Robert Dietz said recent increases in long-term interest rates continue to limit buyer activity and contribute to affordability challenges across many markets. “Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges,” Dietz explained.

The latest HMI survey showed that 32% of builders reduced home prices in May, compared with 36% in April. The average price reduction increased to 6%, up from 5% the previous month. Builders also continued to rely heavily on sales incentives, with 61% reporting the use of incentives in May, marking the 14th consecutive month that incentive usage reached 60% or higher.

All three major HMI component indices increased in May. The index measuring current sales conditions rose three points to 40, while the index tracking expected sales over the next six months increased three points to 45. The index measuring traffic from prospective buyers also increased three points to 25.

Regionally, the Midwest and Northeast each posted one-point gains in their three-month moving averages, rising to 43 and 42 respectively. The South remained unchanged at 35, while the West declined one point to 28.

The NAHB/Wells Fargo HMI is derived from a monthly survey that evaluates builder perceptions of current and future single-family home sales conditions, as well as prospective buyer traffic. Any reading above 50 indicates that more builders view conditions as good rather than poor.