There Are a Few Caveats to the Rising Builder Confidence

There’s plenty of momentum behind builder confidence, according to a new report from the National Association of Home Builders/Wells Fargo.

The questions now are who is going to buy these newly built single-family homes and how are builders and developers going to access loans to do so, given that it has become more difficult to obtain them over the past year.

“This will ultimately result in lower lot supplies as the industry tries to expand off cycle lows,” NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., said.

Meanwhile, in May, moneywise reported that 67% of Millennials who want to own a home have $0 saved for a down payment – and 18% have less than $10,000.

As for builders, solid demand, a lack of existing inventory, and improving supply chain efficiency helped shift their confidence into positive territory for the first time in 11 months, according to the HMI Index produced by NAHB and Wells Fargo.

It’s the sixth straight month that builder confidence has increased and the first time that sentiment levels have surpassed the midpoint of 50 since July 2022. Builders are gradually pulling back on sales incentives, according to the report.

NAHB Chief Economist Robert Dietz added in prepared remarks, “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year.”

Fueling the good news is that the Federal Reserve recently said it is nearing the end of its tightening cycle – a boon to mortgage rates and the cost of financing for builder and developer loans.

“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily, and single-family,” Dietz said.

“By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”

Some 25% of builders reduced home prices to bolster sales in June. The share was 27% in May and 30% in April. It has declined steadily since peaking at 36% in November 2022.