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Builder confidence ends the year on a high note

HMI equals highest reading of the year in December

Homebuilder confidence in the market for newly built single-family homes is ending the year on a high note with the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI), which was released on Wednesday, rising one point to 84, equaling its highest reading since February.

The NAHB/HMI 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.

Despite inflation concerns and ongoing production bottlenecks, this is the fourth consecutive month of increasing builder sentiment as consumer demand remains strong and existing housing inventory remains incredibly limited.

“The most pressing issue for the housing sector remains lack of inventory,” NAHB chief economist, Robert Dietz, said in a statement. “Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots. And while 2021 single-family starts are expected to end the year 24% higher than the pre-Covid 2019 level, we expect higher interest rates in 2022 will put a damper on housing affordability.” 

After three months of decline, homebuilder confidence began to steady in September, but while builder sentiments are clearly back on the rise, the index remains six points lower than its all-time high set in November 2020.

NAHB chairman Chuck Fowke believes that builders’ ability to predict material pricing and delivery timelines, remain a major hurdle in bringing builder sentiment back where it was in the fall of 2020.

“Policymakers need to work on supply chain improvements and controlling costly inflation,” Fowke said in a statement. “Addressing lumber tariffs would be a good place to start.”

On a regional level, the three-month moving average HMI score rose four points in the Northeast and two points in the Midwest for both to end up at 74. The South and the West each posted three-point gains to rise to 87, respectively.

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