for the Third Straight Month

• Homebuilder confidence rose in March, but builders still view conditions as poor.
• Homebuilding conditions have been poor for eight straight months.
• PNC expects further slowing in the housing market this year, but the market should stabilize in 2024.

Homebuilder confidence rose slightly in March as the NAHB Housing Market Index increased two points to 44 from 42 in February. The NAHB index has now risen for three straight months. The NAHB index has been below the 50-point threshold for eight straight months. A reading above 50 means builders view conditions as good than poor. 

The current sales component which makes up 60% of the index rose to 49 in March from 47 in February. The future (next six months) sales condition component fell slightly to 47 in March from 48 in February. The prospective buyers' traffic component rose slightly to 31 in March from 28 in February. The three subcomponents of the NAHB index have been below the 50-point threshold since October. Homebuilder confidence fell in the West and Midwest, held steady in the Northeast, and rose in the South.

Homebuilding activity softened last year as higher interest rates and deteriorating affordability weighed on housing demand. Total housing starts for 2022 were 1.55 million, a 3% decline from the 1.60 million total of 2021. However, construction employment was surprisingly resilient likely due to the large backlog of projects caused by supply-chain issues. As the Fed continues to raise interest rates in the near term to slow inflation, homebuilding activity will decline further but should stabilize next year. But the Fed may turn cautious given the recent bank failures. The Fed’s Summary of Economic Projections (dot plot) which will be released alongside its March 22 policy statement will likely show a lower terminal range than the December forecast.