Photo: James Bombales
US homebuilders have never felt better about their prospects for the future.
The NAHB/Wells Fargo Housing Market Index (HMI) for the month of September ticked up five points to 83, the highest reading in the survey’s 35-year history. The previous record — an HMI of 78 observed in December 1998 — was tied last month, only to be outmatched by September’s stellar performance.
The seasonally-adjusted index ranges from 0 to 100 and is based on NAHB members’ responses to three questions about current single-family home sales, anticipated single-family home sales in the next six months, and the traffic of prospective homebuyers.
Despite builders’ cheery disposition, high material costs and delivery delays continue to weigh on the industry. This is expected to result in higher new construction home prices, barring some would-be buyers from jumping into the market.
“Lumber prices are now up more than 170 percent since mid-April, adding more than $16,000 to the price of a typical new single-family home,” said NAHB Chief Economist Robert Dietz.
However, the growing demand for suburban single-family homes — which are often more affordable to urban buyers — and historically low interest rates could help to offset escalating building costs.
The US Census Bureau also released its monthly findings on new residential construction today. In August, privately-owned housing starts hit a seasonally adjusted annual rate of 1,416,000 units, a 5.1 percent decline compared to the revised July estimate of 1,492,000. That being said, last month’s total was still 2.8 percent higher than August 2019 when 1,377,000 homes kicked off construction.
Starts for single-family homes soared in August, while multi-family projects faltered. “Single-family housing starts rose 4.1 percent to 1.02 million annualized units, a pace nearly matching February’s pre-COVID-19 rate of construction,” wrote Fannie Mae Chief Economist Doug Duncan, in a statement.
Multi-family construction experienced a sharp decline after surging in July, falling 37 percent month-over-month to 375,000 units. Duncan attributed the overall decrease in housing starts to the multi-family market’s lackluster showing.
Building permits, a predictor of future housing starts, were down 0.9 percent overall when compared to the volume recorded in July. But when broken down by housing type, single-family authorizations were actually up 6 percent at a rate of 1,036,000. Permits for multi-family projects amounted to 381,000 in August.
Americans’ seemingly insatiable appetite for homes, spurred by lifestyle changes and low mortgage rates, means good news for builders. Indeed, it seems they have every right to be optimistic about what lies ahead.
“Inventories of existing homes for sale remain extremely tight relative to the pace of sales, likely driving many potential homebuyers to look at new homes for sale,” Duncan added. “Together, these factors remain highly supportive of a strong pace of new housing construction in the coming months.”