Builders are feeling better, but that doesn't mean they're feeling good. The May housing market index moved up three points, while the score is still well below the line that separates optimism from pessimism.
The NAHB/Wells Fargo Housing Market Index landed at 37 in May, up from a sharp April drop, with economists having expected the gauge to hold flat.
A reading above 50 means more builders see good conditions than bad, while anything below 50 is the opposite. The index has been below 50 for months.
For comparison, May 2025 came in at 34, when mortgage rates were near 7%. Rates are lower now at 6.65%, but they've been climbing in recent weeks, per Mortgage News Daily.
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All three subcomponents of the index rose three points in May, with current sales conditions hitting 40, buyer traffic moving to 25, and future sales expectations climbing to 45.
Builders also pulled back on discounts, with 32% cutting prices in May, down from 36% in April. Use of sales incentives ticked up slightly to 61%.
NAHB chief economist Robert Dietz said long-term interest rates are still keeping demand soft, with affordability remaining the bigger problem nationwide.
He pointed to the Midwest as one bright spot, but said the housing market "continues to face significant affordability challenges."
Mortgage rates are the swing factor. They're lower than last year but rising again, which means the late spring bump in builder confidence could fade fast if the move continues.
Rising oil prices, the U.S.-Iran standoff, and inflation pressure are all pushing long-term rates higher right now, and that's not a backdrop that gets buyers off the sidelines.
Spring is typically the biggest sales window for homebuilders. A weak window pushes inventory and incentives into the summer, when buying activity usually slows.
Builders saw a small opening this month. They'll need rates to drop to make it stick.
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