The National Association of Home Builders’ (NAHB) monthly confidence index rose for the third month in a row.

The NAHB index rose two points to 44 in March, according to a Wednesday press release. The mild rise in homebuilder confidence exceeded economists’ expectations; a Wall Street Journal (WSJ) poll of economists believed the index would drop to 40. The NAHB’s March score is the highest reading since September 2022.

This is a stark contrast from one year ago when the index was at 79 points.

Despite rising construction costs and higher mortgage rates, there is still “pent-up” demand from buyers.

Robert Dietz, the chief economist at the NAHB, said, “The cost and availability of housing inventory remains a critical constraint for prospective home buyers.”

Dietz said that land acquisition and credit also remain constraints for homebuilders.

“Forty percent of builders in our March … survey currently cite lot availability as poor,” Dietz remarked.

He also said that if the Federal Reserve were to continue to tighten, builders would expect “further constraints for acquisition, development and construction … loans for builders across the nation.”

Dietz continued:

Meanwhile, the HMI survey shows that builders had better than anticipated new home sales during the past two months because of continued use of incentives and price discounts. Thirty-one percent of builders said they reduced home prices in March, the same share as in February, but lower than the 36% that was reported last November. And 58% provided some type of incentive in March, about the same as the 57% who did in February, but lower than the 62% of builders who offered incentives in December.

…

The HMI index gauging current sales conditions in March rose two points to 49 and the gauge measuring traffic of prospective buyers increased three points to 31. This is the highest traffic reading since September of last year. The component charting sales expectations in the next six months fell one point to 47.

The Northeast rose to 42 points, the Midwest increased to 34 points, the South increased five points to 45, and the West increased four points to 34.