New-Home Builders Doing Great Despite Challenges

WASHINGTON – Strong consumer demand helped push builder confidence higher in October despite growing affordability challenges stemming from rising material prices and shortages. Builder sentiment in the market for newly-built single-family homes moved four points higher to 80 in October, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

When everything is going wrong, the index can be as low as 0. If everything is going right, it can top out at 100. Any score over 50 is on the optimistic side, so at 80, builders’ worries about supply chains and higher prices are currently overshadowed by buyer demand.

“Although demand and home sales remain strong, builders continue to grapple with ongoing supply chain disruptions and labor shortages that are delaying completion times and putting upward pressure on building material and home prices,” says NAHB Chairman Chuck Fowke, a custom home builder from Tampa.

“Builders are getting increasingly concerned about affordability hurdles ahead for most buyers,” adds NAHB Chief Economist Robert Dietz. “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.”

Dietz wants policymakers to focus on fixing the broken supply chain. “This will spur more construction and help ease upward pressure on home prices,” he says.

All three major HMI indices posted gains in October. The index gauging current sales conditions rose five points to 87, the component measuring sales expectations in the next six months posted a three-point gain to 84, and the gauge charting traffic of prospective buyers moved four points higher to 65.

Looking at the three-month moving averages for regional HMI scores, the Midwest rose one point to 69, the Northeast held steady at 72, and the South and West each remained unchanged at 80 and 83, respectively.

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”