Builder confidence in the newly built home market rose another point in July according to the National Association of Home Builders (NAHB). The NAHB/Wells Fargo Housing Market Index (HMI) posted 56 for the seventh straight month of improvement. This is a gain of 25 points since the low in December 2022 and the highest level since June last year. Lower pre-owned home inventory is boosting demand for new homes and driving builder confidence, said NAHB chief economist Robert Dietz, “even as the industry continues to grapple with higher mortgage rates, higher construction costs, and limited lot availability.” “A shortage of resale inventory means that potential home buyers who have not been priced off the market continue to seek new construction in greater numbers. At the same time, builders are chafing at rising mortgage rates approaching 7 per cent and continue to face supply-side challenges, including Including the continuing scarcity of electrical transformer equipment and growing concerns about the availability of too much. Dietz continued, “Although builders remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process that the market will see as the Federal Reserve nears the end of its ongoing tightening cycle. Given that housing inflation accounts for about 40 percent of the CPI, the best way to mitigate this larger source of inflationary pressure is to build additional housing for rent and for sale.There has been some comment linking housing construction gains to growing fears of additional inflation, but this has led to A downturn in the economy.More housing supply is good news for future shelter inflation readings in the market.Moreover, higher interest rates increase the cost of financing home construction and parcel development.Derived from a monthly survey conducted by NAHB for more than 35 years, the NAHB measures / Wells Fargo HMI builder perceptions of current single-family home sales and sales forecasts for the next six months as “good,” “fair,” or “poor.” The survey also asks builders to rate potential buyer traffic as “high to very high” or “moderate.” or “low to very low.” The scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. The component that measures current sales conditions rose 1 point in July to 62 while the component that plots future expectations fell 2 points to 60. However, Dietz points out that the decline is a reminder that housing affordability continues to be challenged by higher interest rates. . Perceptions of the movement of potential buyers increased 3 points to 40, also a 13-month high. HMI’s July survey also showed a decline in the use of construction sales incentives. Only 22 percent of builders reported cutting prices in July, down from 27 percent in May and 25 percent in June. Three-month moving averages for all regional HMI scores increased, the Northeast gained 5 points to 52, the Midwest increased 2 points to 45, the South increased 3 points to 58, and the West gained 5 points to 51.