For the first time since a brutal three-month Treasury selloff drove mortgage rates near 8%, more US homebuilders believe conditions are good than poor.

The NAHB’s gauge of builder sentiment registered 51 for March in Monday’s only notable economic release out of the world’s largest economy.

It was the first reading above 50 since July, and marked the fourth consecutive monthly increase.

The color accompanying the update told a familiar story. “A lack of existing inventory that continues to drive buyers to new home construction, coupled with strong demand and mortgage rates below last fall’s cycle peak helped push builder sentiment above a key marker in March,” it read.

Context is key. As noted above, the swoon in builder moods began in August, when the Treasury term premium embarked on a rapid ascent out of negative territory following the Fitch US debt downgrade. The attendant bear steepener torpedoed equities, and the long-end bond selloff naturally translated into a sharp rise in mortgage rates, which approached an 8-handle in October.

That was enough to offset (and then some) what’s become a structural boon to builder sentiment: A dearth of resale properties, which makes new construction the only game in town. Although high rates keep resale supply sidelined, thereby bolstering the appeal of newly-built homes (people can only buy what’s for sale, after all), if rates are too high it can curb all demand, forcing builders to offer incentives, which erodes margins and so on.

Although builders apparently like what they’re seeing in terms of market trends, mortgage rates are higher versus the Q4 lows and affordability’s still very challenging for a lot of prospective buyers. Quite a bit hinges on the Fed trajectory. “With the Fed expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” NAHB Chief Economist Robert Dietz said Monday.

Association Chairman Carl Harris reminded everyone that builders still face serious supply-side challenges, “including a scarcity of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of building homes.”

Meanwhile, on the existing home front, Redfin’s Dana Anderson underscored the extent to which the tradeoffs that’ve come to characterize the ebb and flow of the housing narrative tend to net out against one another.

“Supply is steadily improving, giving buyers who can afford elevated prices and rates more homes to choose from,” she said, in a recent article. And yet, according to Redfin’s data, the median US monthly housing payment was $2,686 earlier this month, a mere $30 below the record high hit in October.

“High housing costs are still pricing out some would-be homebuyers,” Anderson added, noting that pending sales were down around 6% YoY in the four weeks ending March 10.

Ultimately, there’s just too much going on in US housing to get anything like a clean read on what Jerome Powell aptly described as “a very, very difficult situation.”