The National Association of Home Builders (NAHB) Housing Market Index climbed 3 points to 37 in May, surpassing the consensus estimate of 34 and rising from the prior month's reading of 34.
All three sub-components posted gains: sales conditions rose 3 points to 40, buyer traffic increased 3 points to 25, and sales expectations for the next six months moved up 3 points to 45.
Despite the improvement, the index remains below the 50-point threshold that separates expansion from contraction, meaning conditions are still considered contractionary overall.
The May survey showed builders were slightly less aggressive on outright price cuts, with 32% reducing prices compared to 36% in April. However, the average discount deepened to 6% from 5% the prior month, suggesting that while fewer builders are cutting prices, those who are may be offering larger reductions to attract buyers.
The use of sales incentives remained elevated at 61%, up marginally from 60% in April. That marks the 14th consecutive month in which at least 60% of builders have deployed incentives, underscoring persistent pressure on the housing market from affordability challenges and softer buyer demand.
NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio, commented: "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. However, efforts in the House to modify the 21st Century ROAD to Housing Act could increase the nation's housing supply and help ease builder concerns."
NAHB Chief Economist Robert Dietz added: "Recent increases for long-term interest rates will continue to hold back home buyer demand. Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges."
The NAHB/Wells Fargo Housing Market Index is derived from a monthly survey that NAHB has been conducting for more than 40 years. It gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair," or "poor," and also asks builders to rate traffic of prospective buyers as "high to very high," "average," or "low to very low." Scores for each component are used to calculate a seasonally adjusted index where any reading above 50 indicates that more builders view conditions as good than poor.
Why it matters
The 14th consecutive month with at least 60% of builders using sales incentives signals that affordability pressure is not a short-term fluctuation but a sustained structural condition in the new-home market.
The divergence between fewer builders cutting prices (32% vs. 36% in April) and a deeper average discount (6% vs. 5%) suggests the market is bifurcating: builders who can hold list prices are doing so, while those who cannot are competing more aggressively on value.
The NAHB Chairman's specific reference to pending House legislation — the 21st Century ROAD to Housing Act — signals that supply-side policy changes are being actively tracked by the industry as a potential near-term lever on builder sentiment.
