Despite high mortgage rates, homebuilder sentiment experiences growth in July.

According to the National Association of Home Builders/Wells Fargo Housing Market Index, builder sentiment in the market for single-family homes increased by 1 point in July, reaching a level of 56.

This marks the seventh consecutive month of gains and the highest level since June 2022. A reading above 50 indicates positive sentiment.

Builders attribute the rise in demand for new construction to low supply in the resale market, but they are also facing challenges such as higher mortgage rates and supply-side issues.

“Although builders continue to remain cautiously optimistic about market conditions, the recent quarter-point rise in mortgage rates serves as a reminder of the potential impact as the Federal Reserve approaches the end of its tightening cycle,” said Robert Dietz, NAHB’s chief economist.

In May, the average rate for a 30-year fixed mortgage briefly crossed over 7% and then again at the end of June. While it has slightly decreased in the past week, these higher rates are impacting affordability in the market, where prices for existing homes are once again rising.

In July, the NAHB index showed a 1-point increase to 62 for current sales conditions, a 3-point increase to 40 for buyer traffic (the highest since June of the previous year), and a 2-point decrease to 60 for sales expectations in the next six months. The drop in expectations can be attributed to the rise in interest rates and its effect on affordability.

Despite higher mortgage rates, builders are utilizing fewer incentives, with only 22% reporting price cuts in July. This is a decrease from 25% in June and 27% in May.

According to the U.S. Census Bureau, sales of newly built homes in May experienced a 13% jump compared to April and were 20% higher than in May 2022. The median price, however, decreased by over 7% from the previous year, although this may be influenced by the mix of homes currently being sold, which tends to lean toward the lower end.