SFR Builder Sentiment Ticks Up Despite Affordability Issues

Single-family builder sentiment ticked up four points in October to hit its highest level since July, according to the latest National Association of Home Builders.

The latest NAHB/Wells Fargo Housing Market Index shows that builder confidence hit a level of 80, a high watermark since this summer, with new home sales rising 14% to an 800,000 annualized rate in September. Median prices are up almost 19% year-over-year and existing home sales hit an eight-month high. 

On the flip side, overall construction starts ran counter to these trends, mainly owing to a 5% decline for multifamily starts of projects with more than five units. Single-family starts remained flat at a 1.08 million annualized rate. 

“Although demand remains strong, higher prices have cooled prospective buyers’ intent to purchase a home,” NAHB’s Robert Dietz said in a recent analysis, noting that remodeler confidence remained near all-time highs, at a level of 87 for Q3.

 “Meanwhile, higher home values have lifted home equity and household wealth, which is largely supporting the home improvement sector.”

Dietz predicts that supply-chain issues will continue to challenge the economy well into 2022. Prices for residential construction materials have increased 11% so far this year and are now 14% higher than this time last year, and while lumber prices are down 62% from their May peak, they are on yet another upswing. 

And “lot supplies are as tight as they have ever been,” Dietz says, citing a recent NAHB survey. Around 76% of builders rated the overall supply of developed lots in their regions as low to very low⁠—an all-time record since NAHB began collecting the data in the 1990s. The prior record was 65% in 2018.

Since 2013, the survey has also asked builders to rate the supply of A, B and C lots in the areas where they build, and keeping with prior trends, shortages were most significant for “A” lots.

“All three percentages are at record highs, however, indicating that lot supply problems are historically widespread irrespective of the desirability of the locations,” NAHB’s Paul Emrath writes in a recent analysis of the survey data. “Along with the other aforementioned supply chain challenges, these lot supply problems are one of the reasons NAHB’s standard measure of housing affordability has fallen to its lowest level in nearly a decade.”