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Homebuilder Confidence Logs Surprise Gain Despite Continued Macro, Affordability Concerns

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Homebuilder Confidence Logs Surprise Gain Despite Continued Macro, Affordability Concerns

US homebuilder confidence unexpectedly rose this month despite elevated mortgage rates, macro uncertainty and continued affordability challenges, data from the National Association of Home Builders and Wells Fargo showed Monday.

The housing market index, which covers new single-family homes, increased three points sequentially to 37 in May. The consensus was an unchanged 34 reading in a survey compiled by Bloomberg.

"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," NAHB Chairman Bill Owens said.

Over the weekend, US President Donald Trump said "the clock is ticking" for Iran to make a deal. "They better get moving, fast, or there won't be anything left of them," Trump said in a social media post, underscoring the fragile nature of a recent ceasefire between the US and Iran.

The index gauging sales expectations increased three points sequentially to 45 in May, the NAHB survey showed Monday. The measure charting prospective buyers gained three points to 25, while current sales conditions moved up three points to 40, according to the report.

About 32% of homebuilders cut prices this month, compared with 36% in April. The average price reduction was 6% in May, up from 5% last month, while the use of sales incentives was 61% versus 60%.

"Recent increases for long-term interest rates will continue to hold back home buyer demand," NAHB Chief Economist Robert Dietz said. "Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges."

Last week, the Mortgage Bankers Association said mortgage applications in the US increased in the week prior as potential homebuyers returned to the market despite rising interest rates.

"Soft homebuilder sentiment is consistent with our view that housing starts will mostly move sideways for the next couple of quarters before starting to edge up slightly around year-end, when we expect mortgage rates to be lower as the (Federal Reserve) implements the first of two rate cuts we expect," Oxford Economics Lead US Economist Nancy Vanden Houten said in a report e-mailed toMonday.

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