Builder confidence in the market for newly built single-family homes rose for the third month in a row in March, as homebuilders expressed cautious optimism that the lack of existing inventory would drive demand for new homes, despite high construction costs and interest rates, the National Association of Home Builders reported.    

Specifically, the NAHB/Wells Fargo Housing Market Index rose two points to 44. Any number over 50 indicates that more builders view conditions as good than poor. 

“While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers,” NAHB Chief Economist Robert Dietz said in a news release.  

“For example, 40% of builders in our March HMI survey currently cite lot availability as poor. And a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”  

The HMI is made up of three components, two of which rose. The component gauging current sales conditions rose two points to 49, and the gauge measuring traffic of prospective buyers increased three points to 31, its highest level since last September. The component charting sales expectations in the next six months fell one point to 47. 

Regionally, the three-month moving average of the index rose in all geographic regions, rising five points to 42 in the Northeast, five points to 45 in the South, four points to 34 in the West and one point to 34 in the Midwest.