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  • 2026 opens with a dip in builder confidence, interest rates  – Houston Agent Magazine

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    Homebuilder confidence started the new year on a soft note, as buyers remained constrained by affordability issues despite mortgage rates hitting a three-year low.   

    Builder confidence in the market for newly built single-family homes slid to 37 in January, down two points from December, the National Association of Home Builders reported, citing the NAHB/Wells Fargo Housing Market Index (HMI).  

    “While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors,” said NAHB Chairman Buddy Hughes, a homebuilder and developer from Lexington, North Carolina. “Buyers are concerned about high home prices and mortgage rates, with downpayments particularly challenging given elevated price-to-income ratios.” 

    On a positive note, the average 30-year mortgage rate fell to 6.06% as of Jan. 15, its lowest rate in three years and almost 1% below the same period last year, NAHB Chief Economist Robert Dietz said. 

    Most responses to the homebuilder survey were received before the announcement that Fannie Mae and Freddie Mac would purchase $200 billion of mortgage-backed securities in an effort to further trim borrowing costs, NAHB noted. 

    The HMI gauging future sales expectations fell three points to 49, while the component measuring current sales conditions fell one point to 41, and the index charting prospective-buyer traffic fell three points to 23.   

     “The future sales component of the HMI dipped below 50 for the first time since September, indicating that builders continue to face several issues that include labor and lot shortages as well as elevated regulatory and material costs,” Dietz said. 

    The survey also found that 40% of respondents reported cutting prices in January, the same level as December. This marks the third consecutive month since May 2020 that the share has been 40% or higher, NAHB said. The average price reduction rose to 6% from 5% in December, while the use of sales incentives was 65%, the 10th consecutive month above 60%. 

    Regionally, the three-month averages for the HMI scores were mixed, with the Midwest flat at 43, the Northeast dropping two points to 45, the South sliding a point to 35, and the West rising one point to 35.    

    Each month, NAHB/Wells Fargo surveys builders, asking them to rate single-family home sales over the next six months as good, fair or poor. It also asks builders to rate traffic of prospective homebuyers as “high to very high,” “average” or “low to very low.” Scores are then calculated, and any number above 50 indicates that more builders view market conditions as good/high than poor/low. 

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    John Yellig

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  • U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 

    U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 

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    The numbers: Construction on new American homes jumped 21.7% in May, as homebuilders ramp up building single-family homes to meet strong demand from buyers.

    Housing starts rose to a 1.63 million annual pace last month from 1.34 million in April, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate in every month as it did in May.

    Economists were expecting a slight decline of about 0.8%. The numbers are seasonally adjusted.

    This is the second month in a row that starts are up. The pace of construction was the highest since last April, when starts hit a 1.8 million pace.

    The surge in construction this spring was led by the Midwest.

    Both single and multi-family construction rose in May. Keen interest from would-be home buyers is creating strong demand for new homes. These buyers continue to face a lack of options in the resale market. 

    Building permits, a sign of future construction, rose 5.2% to a 1.49 million rate.

    Key details: As the weather warms up, construction pace has picked up considerably.

    The construction pace of single-family homes rose 18.5% in May while apartment building rose 28.1%.

    Home builders were most active in the Midwest, where housing starts rose by 67% from the previous month. The Midwest also led the nation in terms of single-family construction.

    Permits for single-family homes rose 5.2% in May while permits in buildings with at five units or more rose 7.8%.

    Housing starts are up on an annual basis for the first time in nearly a year. The annual rate of total housing starts rose 5.7% from last May.

    Big picture: New construction is a bright spot in an otherwise despondent housing market. For the buyers who brave 6% mortgage rates, there are few options in the resale market, which continues to funnel demand for new homes. 

    In fact, demand is so strong that homebuilders are pulling back on sales incentives, such as price cuts, the National Association of Home Builders reported on Monday. 

    Builders also reported that they were feeling upbeat about the housing market for the first time in nearly a year.

    What are they saying? “To say that we did not see this one coming would not even come close to capturing the degree to which the May residential construction data caught us off guard,” Richard Moody, senior vice president and chief economist at Regions Financial Corporation, wrote in a note.

    “This is without question an exaggeration of the underlying reality and a reminder that the housing starts data are among the most volatile and random of the government’s major economic indicators,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

    “Having said that,” he added, “the housing sector broadly appears to be healing remarkably fast after enduring a historic shock in affordability last year, when 30-year mortgage rates more than doubled.”

    Market reaction: U.S. stocks
    DJIA,
    -0.59%

    SPX,
    -0.39%
    were down in early trading on Tuesday. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.721%
    rose above 3.7%.

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  • Home builders turn bullish for the first time in nearly a year amid strong housing demand

    Home builders turn bullish for the first time in nearly a year amid strong housing demand

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    The numbers: For the first time in nearly a year, home builders are upbeat about the housing market outlook.

    The shortage of previously-owned sales is helping to buoy builders’ confidence. 

    With mortgage rates above 6%, many homeowners find little incentive to sell—nearly 92% have an outstanding mortgage with a rate below 6%, according to a recent survey conducted by Redfin
    RDFN,
    -0.37%    ,
    a brokerage and real estate listings company. And 23.5% of homeowners have a mortgage rate of less than 3%. Consequently, the number of new home listings has dropped by 22%, as compared with the same period a year ago, according to a Realtor.com housing trends report.

    In turn, home builders are feeling good about their business. The National Association of Home Builders’ (NAHB) monthly confidence index rose 5 points to 55 in June, the trade group said Monday.

    This is the sixth month in a row that sentiment has improved among builders. It is also the first time in 11 months that builder confidence has moved into positive territory of above 50.

    The June reading of 55 was the strongest since July 2022. A year ago, the index stood at 67.

    Key details: Builders were starting to pull back on sales incentives. The share of builders cutting prices to boost sales has dropped to 25% in June, from a peak of 36% in November 2022.

    The typical builder was cutting prices by 7% in June, the NAHB said.

    The three gauges that underpin the overall builder-confidence index were up.

    • A reading on current sales conditions rose by 5 points. 

    • A measure on future sales gained 6 points.

    • A gauge of traffic of prospective buyers rose by 4 points. 

    Big picture: Due to pandemic-era monetary policies that depressed mortgage rates, the home buyers, real-estate agents, mortgage brokers and the rest of the industry are stuck trying to find solutions to a major supply crunch of homes.

    Builders seem to be one of the few participants who have benefited from the supply crunch, given the nature of their business of new construction. The homebuilder ETF,
    XHB,
    -0.38%    ,
    is up 25% year-to-date. 

    What the NAHB said: “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” Robert Dietz, chief economist at the NAHB, wrote.

    And with the “Federal Reserve nearing the end of its tightening cycle,” the statement read, it’s “good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

    Markets were closed on Monday in observance of the Juneteenth holiday.

    Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.

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  • Teardowns Growing Part Of New Home Building Landscape

    Teardowns Growing Part Of New Home Building Landscape

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    If given their druthers, many home buyers would prefer a home in an established old-line city or suburban neighborhood. These enclaves are often “close-in” to the metro’s hub, offer charming vintage homes, and exist under green canopies of mature trees.

    Considering all the technological advancements that have come to homes and home building in recent years, many home buyers would also favor a brand-new house. The bells and whistles can make life considerably more enjoyable, convenient and secure.

    But established districts tend to be filled with old residences, and brand-new homes tend to be situated in brand-new neighborhoods. The exception? New infill homes built in old-line enclaves. These residences give buyers the marriage they desire of vintage and modern.

    Infill house construction is the forte of builders whose businesses find undeveloped parcels between existing structures and build new homes upon them. They are also the focus of builders specializing in teardown-rebuilds. Examples include builders like Portland’s Hamish Murray Construction Inc., the St. Louis area’s Superior Home Solutions and Aliso Viejo, Calif.-based Thomas James Homes.

    Growing challenges

    Several months ago, a National Association of Home Builders (NAHB) report found in 2021, nine percent of new homes resulted from teardowns.

    On the high end, about one in five (20.1%) of new homes result from teardowns in the Pacific region, made up of California, Oregon, Washington, Alaska and Hawaii. On the low end, about 3.8% in the West South Central region of Texas, Oklahoma and Louisiana are new homes built on the sites of houses that fell to the wrecking ball.

    Older, established neighborhood infill development that doesn’t require demolishing existing dwellings is roughly twice as commonplace as teardown-rebuilds.

    But the NAHB acknowledges teardowns are an increasing part of the U.S. home-building market, due to growing hurdles in locating undeveloped parcels. An NAHB survey in late 2021 found 76 percent of new home builders say the overall supply of lots in their regions is low to very low.

    That percentage has steadily risen virtually year after year since 2013, and easily beat the previous record of 65% set in 2018.

    Touting advantages

    Among marketing strong points of builders performing teardowns is the offer of new homes in buyers’ preferred neighborhoods, in contrast to renovating an existing house in the desired area to bring it up to the level of today’s expectations.

    “In the repair and remodel world, there is always a sacrifice,” says Tommy Beadel, co-founder and CEO of Thomas James Homes, which builds residences in California, the Pacific Northwest, Colorado and Arizona. “You may get the home where you want it, but then you end up fixing the parts that don’t meet your standards. Buyers want the ease of access to what they want and that it is at market value.”

    The teardown-rebuild model allows buyers to move to communities where new home construction ended decades earlier and no more lots exist. In such settings, the growing pains of the neighborhood are long past, and long-standing services and institutions are in place to serve residents.

    “There is a scarcity of product and no more land to build on within these top markets,” Beadel says. “Thomas James Homes is in the markets where the average age of housing is 80-plus years, and the only viable solution is through teardown building. Teardown building allows homeowners to pick exactly where they want to be. When rebuilding an individual home, owners have the option to stay exactly where they are or pick the location where they want to be.”

    The volume of teardowns has increased at a rapid rate over the past decade in places as diverse as suburban Detroit, Montclair, N.J., Nashville, Chicago’s Near Northwest Side and Vancouver, B.C. As some have said, teardowns are the inevitable byproduct of the appeal of vintage communities on one hand, and the attractiveness of new home products and technology on the other.

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    Jeffrey Steele, Contributor

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  • Builder sentiment fell every single month in 2022. Builders say there’s a silver lining.

    Builder sentiment fell every single month in 2022. Builders say there’s a silver lining.

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    The numbers:  The National Association of Home Builders’ monthly confidence index fell two points to 31 in December, the trade group said on Monday.

    It’s the 12th month in a row that the index has fallen.

    Outside of the pandemic, the December reading of 31 is the lowest level since mid-2012.

    A year ago, the NAHB index stood at 84. The index’s 12-month drop is a new record. 

    But it’s not the biggest drop, the NAHB said. The drop in builder confidence between the end of 2004 and the start of 2009 was sharper; the index fell from 71 to 8 in that span.

    Key details: The three gauges that underpin the overall confidence index were mixed:

    • The gauge that marks current sales conditions fell by 3 points. 

    • The component that assesses sales expectations for the next six months rose by 4 points.

    • And the gauge that measures traffic of prospective buyers was unchanged from last month.

    All four NAHB regions posted a drop in builder confidence, led by the South and the Northeast. 

    Big picture: While builders continue to struggle to find buyers with the current rate environment, they’re also seeing a light at the end of the tunnel.

    Buyers are slowly coming back to the table as mortgage rates are no longer above 7%, and home price growth is moderating.

    And with 62% of builders offering incentives like mortgage rate buy-downs, paying points for buyers, and even price reductions, that luring some buyers, per the NAHB.

    About 35% of builders were dropping home prices in December, the NAHB said, with the average price reduction being 8%.

    What the NAHB said: “The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” Robert Dietz, chief economist at the NAHB, said in a statement.

    “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations,” he added.

    But the NAHB is expecting “weaker housing conditions” to persist in 2023, and only forecasts a full recovery in 2024, Dietz said. There is still a gap of 1.5 million housing units, they estimated nationwide.

    Nonetheless, the path to recovery is hard, the builders stressed.

    “In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” Jerry Konter, chairman of the NAHB and a home builder and developer from Savannah, Ga., said in a statement.

    “With construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices,” Konter added.

    What are they saying? “We think home sales will find a floor by the end of the first quarter, helped by the near-75 [basis point] decline in mortgage rates since late October,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a note.

    “But a meaningful recovery is still a long way off, and home prices have much further to fall,” he added.

    Market reaction: The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.597%
    rose to 3.57% on Monday morning.

    While the SPDR S&P Homebuilders ETF
    XHB,
    -1.67%
    traded slightly lower during the morning session, as well as big home builder stocks like D.R. Horton Inc
    DHI,
    -1.44%    ,
    Toll Brothers
    TOL,
    -0.87%    ,
    and Lennar
    LEN,
    -2.28%    .

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