Home Builders Are Confident in 2023

 CNN reported that January has seen an improvement in home builder confidence. In fact, it was the first uptick since it has been falling for the past year.

Construction prospects are improving and this is good news for homebuyers in the housing market. For the past several years potential buyers have been facing a battle due to low inventory. According to the National Association of Home Builders/Wells Fargo Housing Market Index, the current sales, buyer traffic, and the conditions for the sale of new construction homes are improving.

Even with spikes in construction costs, shortage in building materials, and harsh affordability conditions, builders are starting to look up. The National Association of Home Builders/Wells Fargo Housing Market Index, which * is meant to gauge market conditions reported that builders’ confidence went up from December to January. December reported the lowest since 2012.

“It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” Konter said. “The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.”

“In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability,” he said. “Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units.”

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Huge Gains in Housing Starts From October 2021 to November 2021

 The U.S.Department of Housing and Urban Development and the U.S. Census Bureau reported an 11.8% rise month-over-month to a seasonally adjusted rate of 1.68 million units from October 2021 to November 2021. The increase showed a double-digit gain caused by the low housing inventory and rising builder confidence. Single-family homes saw an increase of 11.3% to 1.17 million units and multifamily new construction saw an increase of 12.9% to 506,000 units.

“Breaking an eight-year trend, in recent months there have been more single-family homes under construction than multifamily units,” National Association of Home Builders chief economist Robert Dietz said in a statement. “Moreover, despite some cooling earlier this year, the continued strength of single-family construction in 2021 means there are now 28% more single-family homes under construction than a year ago. These gains mean single-family completions will increase in 2022, bringing more inventory to market despite a 19% year-over-year rise in construction material costs and longer construction times.”

"Mirroring gains in the HMI reading of builder sentiment, single-family housing starts accelerated near the end of 2021 and are up 15.2% year-to-date as demand for new construction remains strong due to a lean inventory of resale housing,” Chuck Fowke the chairman of the NAHB said in a statement.

“The bottom line is we need more homes and it will take time to reduce the housing stock ‘debt’ in the face of growing demand,” First American deputy chief economist Odeta Kushi said in a statement. “But today’s housing starts report, in combination with a positive builder’s sentiment report, sends an optimistic message about the housing market as we enter 2022.”

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2021 Third Quarter Sees A Strong Boost In the Vacation Home Market

 

The NAHB Home Building Geography Index (HBGI) released in December 2021 shows an increase in permits for second homes. The counties in the country with a high ratio of vacation homes have seen a big spike.

“Over the last year, second-home markets have increased their market shares, due to increases in hybrid work arrangements, early retirements and wealth gains in housing and stocks,” said NAHB Chief Economist Robert Dietz.

New construction growth has taken off in the second home market. The growth rate for single-family homes in the second home market was 36.1%, this is a rise compared to the non-second home market average of 23.2%.

In the past year, the housing market for single-family homes has been booming in suburban areas. The report shows that the higher density markets are coming back. This is not the case in the multifamily construction sector. Permits for multifamily projects were higher in smaller cities and rural areas than in larger metropolitan areas.

“As more workers transitioned back to the workplace, there was a rebound for housing production in urban core markets, as well as ongoing growth in exurban areas,” said NAHB Chairman Chuck Fowke. “And while builders are still grappling with affordability headwinds in both small and large markets, this rebound in housing production in some higher density markets where building is more costly highlights the need for policymakers to reduce housing supply barriers that are driving up home prices.”

“Although all geographies are showing construction growth, the suburban shift is less pronounced than we’ve seen in prior quarters as some higher-density markets see a rebound even as exurbs continue to expand,” said NAHB Chief Economist Robert Dietz.

Single-family permit growth data for the third quarter of 2019 and 2020 was 5.6% in large metro communities while it was 12.3% in the suburbs. The current report for the fourth quarter of 2020 and 2021 shows an increase of 21.1% in large metro markets and a 30.8% increase in the suburbs.

For multifamily permits, the 2020 and 2021 data show they fell from 40.5% to 37.9% in higher density markets while they rose from 24.9% to 37.2% in the smaller communities. This is a large shift in this market. Historically, year-to-year changes in multifamily market share are usually slow to develop and rarely move more than one percentage point higher or lower. This makes these latest year-over-year numbers noteworthy.

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2021 Third Quarter Up From Third Quarter of 2020 For the NAHB/Royal Building Products Remodeling Market Index (RMI)

 

The remodeling industry confidence has seen an improvement year over year when it comes to home remodeling. The National Association of Home Builders just put out its NAHB/Royal Building Products Remodeling Market Index (RMI) for the third quarter which saw a reading of 87. This is five points above the reading of the third quarter in 2020.

“Demand for remodeling remains strong, and remodelers are doing quite well as long as they can adequately deal with material and labor shortages,” said NAHB Remodelers Chair Steve Cunningham, CAPS, CGP, a remodeler from Williamsburg, Va. “So far, a substantial share of their customers have been willing and able to tolerate the extra cost and delays of requested remodeling projects.”

The RMI was changed in 2020 in response to a need to "improve its ability to interpret and track industry trends." Seasonally adjust quarter to quarter data cannot be compared due to the redesign. The quarterly data is gathered now by asking remodelers to compare the market conditions during the survey quarter as better, about the same or worse. Interestingly enough, 78% of those who answered the survey rated the current market about the same.

The Current Conditions Index also came up with an increase from 2020. The third quarter of 2021 averaged 90 which is a four-point increase from the third quarter of 2020. Each component compared had an increase. These components include large remodeling projects ($50,000 or more) rose six points to 86, moderately-sized remodeling projects (at least $20,000 but less than $50,000) increased five points to 91 and small remodeling projects (under $20,000) inched up one point to 91.

The Future Indicator Index was up seven points from the third quarter of 2020 at an average of 84 in the third quarter of 2021. The components measured in this index are the current rate at which leads and inquiries are coming and the backlog of remodeling jobs. The leads and inquiries rose to 83 points and the backlog rose to 85 points.

“We are seeing strong demand and continued optimism in the residential remodeling market, despite the fact that supply constraints are severe and widespread,” said NAHB Chief Economist Robert Dietz. “For example, well over 90% of remodelers in the third quarter RMI survey reported a shortage of carpenters. And 57% of remodelers reported having slightly raised prices for projects over the last six months, with another 28% indicating a significant increase in price, due in part to higher material costs and ongoing strong demand. Half of these remodelers reported some pricing out of demand due to higher prices for remodeling projects.”

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Summer Saw an Increase in Private Residential Spending

The strong housing market and an uptick in the US economy are encouraging homeowners to spend money. According to NAHB analysis of Census Construction Spending, there was a 0.4% increase in the month of August in private residential construction spending. This took the seasonally adjusted annual rate to $786.6 billion. The data reported shows a 24.3% increase in total private residential construction spending over a year ago.

There was a dip in spending on single-family and multifamily improvements in July but it jumped back up 2.5% in August. This might have been due to such issues with building material supply chains and labor challenges. Material prices such as lumber are also skyrocketing.

The National Association of Home Builders construction spending index saw solid growth in single-family construction and home improvement. The data also reports a rebound in new multifamily construction spending. Private nonresidential construction spending was reported at a seasonally adjusted annual rate of $455.6 billion in August.

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March 2021 Sees Gains for Private Residential Spending According to the National Association of Home Builders

 

The NAHB analysis of Census Construction Spending data revealed that March 2021 saw an increase of total private residential construction spending by 1.7% to a seasonally adjusted annual rate of $725.3 billion. This is 23.3% higher than reported this time in 2020.

Along with the pandemic’s stay-at-home orders, homeowners put remodeling and improvements on the forefront. The gains seen in March were mostly attributed to a large amount of spending on single-family and improvements. Single-family construction spending rose to a $389.9 billion annual pace in March, up by 2%. The report also showed a 2% increase in single-family home remodeling.

This spending increase runs along with the single-family housing starts which also jumped in March. According to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, overall housing starts increased 19.4% percent to a seasonally adjusted annual rate of 1.74 million units. They have not seen such a fast pace since June 2006.

Housing starts are also on the rise with 636,000 single-family homes currently under construction which is 19% higher than this time last year. NAHB reported that combined housing in the Midwest 28%, the Northeast 23%, in the South 10% and 5% in the West. Permits were higher in the Midwest and South, lower in the Northeast and the same in the West.

Now is a good time to purchase a new home. If you are in the market for a home, go through a local sales agent who knows the market in your area.

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