Homebuilders Confident in Demand but Worried About Banking Crisis

Despite high construction costs and interest rates, U.S. homebuilders are confident in their industry.

The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed confidence among builders in the market for newly constructed single-family homes rising two points this month to 44, the NAHB announced Wednesday (March 15).

It is the third consecutive month builder sentiment has gone up, though the association notes there are clouds on the horizon after the troubles in the banking industry that began last week.

“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory,” NAHB Chairman Alicia Huey said in a news release.

“But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.”

And while financial stress has brought long-term interest rates down, the cost and availability of housing is still constrained, with 40% of builders surveyed rating lot availability as “poor,” said  NAHB Chief Economist Robert Dietz.

“And a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction [AD&C] loans for builders across the nation,” Dietz said.

“When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”

The NAHB findings come days after a report from Corelogic showing that while housing prices are coming down, it may not be enough.

The company's monthly U.S. home price insights — which analyzes the housing market through January of this year and forecasts through January 2024 — found that single home prices rose 5.5%, the slowest annual gain since June 2020.

Corelogic projected the pace will continue to slow through this year, with a 3.1% year-over-year increase. And while the slow decline of home prices is good news, first-time buyers still face challenges, with mortgage rates climbing.

Meanwhile, research from the PYMNTS report, “Consumer Inflation Sentiment: Rising Housing Costs Deflate Economic Optimism,” shows consumers’ hope for homeownership dropping.

The 7% decline in consumers’ belief that buying a home is possible across age demographics has struck Generation Z hardest. While 35% believed homeownership was within reach in January 2021, just 29% believed so in January of this year.