Builder Confidence Improves But Still Hovers Below Neutral

In the wake of the recent presidential election, the National Association of Home Builders (NAHB) reported a modest uptick in builder confidence for November, marking the third consecutive month of gains. The NAHB/Wells Fargo Housing Market Index (HMI) rose three points to 46, remaining below the neutral threshold of 50, which separates positive from negative sentiment.

Builders expressed optimism that the Republican sweep of the White House and Congress would lead to regulatory relief, potentially boosting construction activity. NAHB Chairman Carl Harris stated, “Builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments.”

However, the industry continues to grapple with significant challenges. NAHB Chief Economist Robert Dietz cautioned, “The industry still faces many headwinds such as an ongoing shortage of labor and buildable lots along with elevated building material prices.” Additionally, the recent rise in long-term interest rates has raised concerns about housing affordability and the potential dampening effect on buyer demand.

Despite a slight reduction in the use of sales incentives—down from 62% to 60%—and a decrease in average price cuts from 6% to 5%, the percentage of builders reducing prices has remained steady at 31% since July. This indicates ongoing pressure to attract buyers amid affordability concerns.

Regionally, the three-month moving averages for the HMI showed mixed results. The South gained one point to 42, the Northeast rose four points to 55, and the Midwest increased three points to 44. The West, however, remained unchanged at 41, reflecting persistent regional disparities in market conditions.

While the post-election optimism has provided a temporary boost to builder sentiment, the industry remains cautious. Ongoing labor shortages, high material costs, and rising interest rates continue to pose significant challenges to sustained growth in the housing market

Franklin Carroll

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.

Published November 22, 2024