Homebuilder confidence continued to rise in October despite increasing affordability issues due to rising material prices and ongoing shortages, according to the latest National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI) report released on Monday.
The report is based on a monthly survey of NAHB members, in which respondents are asked to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index where any number over 50 indicates that more homebuilders view conditions as good than poor.
Sentiment among homebuilders for newly build single-family homes rose four points in October to 80, the index’s highest reading since July 2021. Confidence among homebuilders began to steady in September, as the index rose one point after a three-month decline. While this October reading is positive, it is still 10 points lower than the index’s all-time high set in November 2020.
NAHB attributes this increase to strong consumer demand for homes. As housing inventory remains low and buyers are continuing to face strong competition with one-third of homes going under contract within a week, many are becoming discouraged and have started looking for alternative options.
In Burlington, Vermont, where demand continues to remain strong and inventory is at the lowest level many agents have ever seen, many frustrated homebuyers, tired of losing homes to intense bidding wars, are turning to new builds as a way to ensure they have a place to live.
“People have nowhere to go, so they are just building, building, building, and people are buying them up” Claire Kavenaugh an eXp agent in Burlington said. “Building has become more expensive, but people are willing to pay the prices because it guarantees them a home. The reservation agreement might be a bit more than a pre-existing home, but they are paying a price similar to what they would end up paying in a bidding war, expect they know they are getting the home.”
This increased demand for new homes, compounded with continuing material and labor shortages, has caused new homes to become less affordable.
“Builders are getting increasingly concerned about affordability hurdles ahead for most buyers,” NAHB chief economist Robert Dietz said in a statement. “Building material price increases and bottlenecks persist and interest rates are expected to rise in coming months as the Fed begins to taper its purchase of U.S. Treasuries and mortgage-backed debt. Policymakers must focus on fixing the broken supply chain. This will spur more construction and help ease upward pressure on home prices.”
Regionally, there was very little change in HMI scores. The Midwest rose one point to 69, while the Northeast, South and West held steady at 72, 80 and 83, respectively.