Eye on the Economy: Builders Remain Cautiously Confident


***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis.

April’s home construction data and May’s builder confidence reading tell a similar story with respect to home building at the start of the second quarter. Housing demand is promising, particularly given constrained conditions for existing home inventory. But while home building continues to grow, the industry is currently in a cautious stance given regulatory burdens and supply chain issues.

For example, builder confidence in the market for newly-built single-family homes remained unchanged in May at a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The May reading marked the fourth straight month the HMI yielded a value of 58.

Consistent with the HMI, single-family housing starts were up just 3.3% for the month of April to a seasonally adjusted annual rate of 778,000, according to estimates from the Census Bureau and the Department of Housing and Urban Development. Though it was an improvement over the previous month, April’s reading represented only a 4.3% gain on a year-over-year basis. However, NAHB expects momentum will continue to pick up in the single-family construction market, as permits are running 8.4% higher than a year ago.

In contrast, the multifamily development market is showing signs of deceleration. Multifamily starts (2+ unit production) came in at a 394,000 pace on a seasonally adjusted annual basis in April, down almost 12% on a year-over-year basis as the market rebalances the production mix to single-family. Multifamily permits are down almost 24% on a year-over-year basis as of April.

Prominent challenges affecting overall residential construction include rising regulatory burdens, the costs of which can price out both renters and prospective homebuyers. Evidence of this economic impact is clearly seen in the current market mix of new homes that favors larger residences.

In addition to the burdens of government fees and rules (including the Department of Labor’s new overtime rule), recent increases of building material prices give builders yet another reason to be watchful. For example, softwood lumber prices rose 2.7% in April, reaching their highest reading since February 2015. OSB prices rebounded 3.9% in April, reversing course after four consecutive months of decline, and prices for concrete increased in line with their long-run trend.  Gypsum prices rose nearly 5%, a gain not seen since January of last year.

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