Homebuilders suggest more affordable supply could be on the way

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Mortgage activity lost some steam at the end of the year as higher home prices and previous growth in rates pushed down home sales. But the slowdown helped stabilize the housing market, and consumers could see more affordable home inventory on the market, according to the National Association of Home Builders and Wells Fargo.

"In a healthy sign for the housing market, more builders are saying that lower price points are selling well, and this was reflected in the government's new-home sales report released last week," said NAHB Chief Economist Robert Dietz in a press release.

"Increased inventory of affordably priced homes — in markets where government policies support such construction — will enable more entry-level buyers to enter the market," he said.

Starter home inventory has been particularly tight as homeowners continue staying put longer and opt to renovate rather than move into another house. Homebuilders, struggling with construction costs and higher prices for land, tend to develop houses at higher price points to make a profit. But evidence that lower-priced homes are doing well, atop a cooling in price appreciation, helps incentivize builders to create more affordable supply.

This also comes at a time when mortgage applications for new home purchases are on the rise.

Builder confidence in the housing market held steady at a reading of 62 in March, according to the NAHB and Wells Fargo's Housing Market Index, where a value over 50 means more builders view conditions as good than poor. Builders also expect a strong spring home buying season ahead.

Despite this, affordability remains a top hurdle for homebuilders, and shortages of workers, buildable lots and tight zoning restrictions — particularly in big cities — continue to challenge them as they aim to create entry-level inventory, according to NAHB.

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Homebuilders Home prices Housing market Housing inventory Housing affordability Mortgage rates NAHB Wells Fargo