Supply chain woes, dwindling qualified workforce, pricey materials, local red tape, angry neighbors…the list of reasons why homebuilders may not look at the future with rose-tinted glasses goes on and on. However, things may look up as mortgage rates start cooling down.
As mortgage rates descended below 7% in January, builder confidence surged seven points to 44, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This monthly survey gauges builder perceptions of current single-family home sales and sales expectations for the next six months. It includes three major components: current market conditions, future sales prospects, and traffic of prospective buyers. All three elements showed increases in January, bringing the HMI closer to the magic number of 50, which indicates that more builders view conditions as good than poor.
“Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs,” said NAHB Chairman Alicia Huey. “Single-family starts are expected to grow in 2024, adding much needed inventory to the market. However, builders will face growing challenges with building material cost and availability, as well as lot supply.”
Building the Future
Optimistic builders are great news for home buyers disappointed by the slim pickings in the current inventory, but also for the economy overall, as the stubbornly high cost of shelter has been one of the primary drivers behind inflation.
According to the National Association of Realtors, the United States is currently experiencing a housing shortage of between 5.5 and 6.8 million units, with the gap between supply and demand widening every year. The construction industry suffered severely during the Great Recession, which put many contractors out of business, with the survivors favoring high-end custom-built homes over riskier large scale projects. With the sharp increase in demand following the pandemic, the situation has become more urgent than ever and has propelled property values to new record highs in many areas.
As house hunters turn towards new construction as a substitute for missing inventory, builders have started offering more affordable properties with a smaller footprint and less luxurious finishes. In addition, 62% of builders provided some form of incentive to sweeten the deal.
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
