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Home builder confidence rises on unseasonably strong demand

By Mike Wheatley | December 20, 2021

Home builders are feeling increasingly confident as they head into the new year thanks to seasonally strong demand in what is usually a much slower time of the year.

Builder sentiment in the single-family housing market rose by a single point to 84 in December, according to the National Association of Home Builders/Wells Fargo Housing Market Index. That represents the fourth straight monthly increase, and is the highest score since February of this year.

Experts say that any score above 50 is considered to be positive sentiment, so, it’s clear from the HMI that builder are feeling extremely optimistic overall.

The increased confidence comes amid a number of concerns builders have over issues such as inflation, supply chain disruption, the rising cost of building materials and the ongoing labor shortage. According to the most recent producer price index, the cost of wallboard, steel, aluminum and plastic construction products all rose in November.

Chuck Fowke, chairman of the NAHB, told media the incredibly strong demand from buyers was enough to override all of those concerns.

Indeed, home builders are benefiting from an historically low supply of existing homes for sale. At the same time, it’s not only prospective home buyers, but also investors who’re scrambling to get their hands on new construction. The so-called build-for-rent sector is growing rapidly, and the number of single family homes built exclusively to be rented out hit its highest-ever quarterly volume during the third quarter of the year.

Still, builders may do well to note that the unprecedented demand they’re seeing now might not continue into 2022.

“While 2021 single-family starts are expected to end the year 24% higher than pre-COVID 2019 levels, we expect higher interest rates in 2022 will put a damper on housing affordability,” warned NAHB Chief Economist Robert Dietz.

There are three components that make up the HMI index. Current sales conditions increased by one point to 90, while buyer traffic also rose by a point to 70. However, sales expectations in the next six months stayed unchanged for the third consecutive month at 84 points.

A look at the three-month moving average regional HMI scores shows that builders in the South and West regions are the most optimistic of all. There, the HMI rose by three points to 87 overall. In the Northeast, the index rose four points to 74, while the Midwest saw an increase of two points to an overall score of 74.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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