NAHB Housing Market Index Comes in Stronger Than Expected in May
Key takeaways
- Homebuilder confidence grew in May to hit the highest levels in ten months
- NAHB said undersupply of existing homes was boosting new builds
- Housing market is still not great — safe haven assets might be good diversification for investors
U.S. homebuilders are feeling more positive about the market, the National Association of Home Builders (NAHB) found for May. It pushes the index up to the highest levels since 2022, but the broader housing market is still on shaky ground thanks to high interest rates. We’ve got the details below.
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What did the NAHB index say?
The NAHB index gives investors a good read on homebuilder sentiment towards the new home market. The latest figure from May came in at 50, which is above April’s 45 figure and which also beat analysts’ expectations of it staying at the same level.
The index is now the highest it’s been in ten months. Anything 50 or higher means there’s a positive sentiment about the market, so it’s a good sign that confidence is returning to the flagging sector.
In a blog post, the NAHB said the results were due to a chronic undersupply of housing in the U.S., which meant new home construction was driving sales despite much higher interest rates. Builders dropping prices on new homes decreased to 27% in May, down from 30% in April, while the average price reduction has remained steady at 6% for four months.
What does it mean for investors?
Despite the optimistic news, it’s not smooth sailing ahead for U.S. home construction thanks to the industry being dogged by supply chain issues, materials shortages and interest rates skyrocketing to bring down inflation, making mortgages more expensive for would-be homeowners.
The industry will be hoping more than others to see an end to rate rises soon. The CME FedWatch tool currently predicts a pause in interest rates with a 78.6% probability. As for investors, those exposed to construction stocks may feel the pinch as fewer Americans buying homes impacts the sector.
On the plus side, there may be more opportunities with ‘safe haven’ assets like gold and other precious metals to diversify your portfolio during a downturn. These tend to go up in value if the economy isn’t looking too hot.
The bottom line
While house-builder sentiment may slowly be improving, the U.S. housing market is still out of sorts and a long way from recovery, thanks to higher interest rates. The best approach is a diversified portfolio across different asset classes — something AI investing can help you with.
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