Homebuilding starts to pick back up as buyers adjust to new pricing norms in tight market

Homebuilding starts to pick back up as buyers adjust to new pricing norms in tight market

After months of slowdown in the wake of weaker buyer demand, homebuilders are starting to pick back up on construction — and feeling more confident about the housing market since mortgage rates surged last year.

“There’s such a low level of inventory on the market (and) so many people are locked into very low interest rates, which makes new homes one of the more available options in a lot of markets,” said Kelly Mangold, a principal at RCLCO Real Estate Consulting.

A monthly pulse check of the homebuilding industry suggests greater optimism, too. The National Association of Home Builders/Wells Fargo Housing Market Index, a monthly survey of NAHB members that measures present single-family home sales, single-family sales for the next six months and traffic of prospective buyers, found improvement on all three metrics for its June 2023 index.

Mortgage rates remain volatile but are moving up and down less dramatically than they did in the second part of 2022, with rates hovering between 6% and 7% for some time now, giving buyers more confidence about what they can afford.

Looking at the overall market, the number of homes for sale nationally fell 7.1% year over year, to 1.4 million on a seasonally adjusted basis, in May, according to Redfin Corp. (Nasdaq: RDFN), the first annual decline since April 2022.

As builders look at their current and future pipelines, there’s been somewhat of a shift away from the upper segment of the market — the move-up buyer or luxury housing market, for example — to more affordable options, although first-time buyers may still be hard pressed to find entry-level-priced new construction.

One factor worth watching is the impact Canadian wildfires may have on lumber prices, with lumber futures at $536.50 per thousand board feet as of Wednesday morning. That’s up from a six-month low of $469 per thousand board feet seen in January. Construction costs make up about 60% of a final home price, Ratiu said, so fewer surges in construction costs — aside from the wildfires — have given builders more breathing room overall.


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