Homebuilder Confidence Rebounds on ‘Still Hot But More Stable’ Demand

Homebuilder sentiment rose in September after three months of declines as prices eased for lumber and other building material, according to a report on Monday.

The National Association of Home Builders/Wells Fargo Housing Market Index rose to 76 this month from 75 in August, according to the report. A reading above 50 for the seasonally adjusted index means more builders view conditions as positive, according to NAHB.

Economists expected the report to show the index fell one point, according to a survey by Trading Economics.

One tailwind helping the new-home market during a time of year that traditionally sees softer demand from buyers is a drop in prices for some building materials such as lumber, said Robert Dietz, NAHB’s chief economist. However, a longstanding shortage of skilled labor continues to be a problem, he said.

“The single-family building market has moved off the unsustainably hot pace of construction of last fall and has reached a still hot but more stable level of activity,” he said. “While building material challenges persist, the rate of cost growth has eased for some products, but the job openings rate in construction is trending higher.”

Low mortgage rates stemming from a Federal Reserve program to purchase mortgage bonds to support the economy during the pandemic has boosted demand for homes and fueled an upward spike in prices. At the same time, supply-chain bottlenecks caused by the global pandemic made it difficult for builders to get materials and sent lumber prices to an all-time high in May

“For homebuilders, the ongoing labor shortages and concerns about the costs and availability of various building components are still heightened,” said Greg McBride, chief financial analyst for Bankrate, a New York-based financial data company. “But things have eased a bit from earlier in the year and aren’t as frenetic, so sentiment has improved a bit.”

The median price of a new house reached an all-time high of $390,500 in July, a gain of 18% from a year earlier, according to federal data.

While the price gains in some markets have started to cool off, housing affordability will remain an issue in 2022, said NAHB's Dietz.

“Regionally, we continue to see growth in the South and the West, particularly the Mountain West,” Dietz said. “Exurban markets have expanded the most over the last year, although inner suburbs are now experiencing an acceleration, with townhouse construction having had the best quarter in 14 years this spring.”

A subset of the NAHB data showed an index gauging current sales conditions rose one point to 82, a component measuring traffic of prospective buyers posted a two-point gain to 61 and the gauge of sales expectations in the next six months held steady at 81.

“The September data show stability as some building material cost challenges ease, particularly for softwood lumber,” said Chuck Fowke, NAHB’s chairman. “However, delivery times remain extended and the chronic construction labor shortage is expected to persist as the overall labor market recovers.”