By: Stessa
Homebuilders
David Logan of the National Association of Home Builders (NAHB) opens the week reporting on the producer price index (PPI) for inputs to residential construction, which rose 8.3% in 2022, down from 18.9% in 2021. This is welcome news for builders, who saw runaway material costs throughout the pandemic.
Source: NAHB (January 2023) Further NAHB data shows that “overall housing starts decreased 1.4% to a seasonally adjusted annual rate of 1.38 million units in December…Also of note, single-family housing starts ended the year down more than 10%, marking the first annual decline since 2011.” Hannah Jones of Realtor.com reports on construction, noting that permits for single-family home construction dropped 1.6% month over month in December and almost 30% year over year. That said, multifamily permits for 5+ units jumped by 7.1% month over month. Jones notes that: Interest rates fell as low as 6.27% in December, down 0.8 percentage points from recent highs. Home price growth also slowed to 8.4% year-over-year in December, the slowest growth in over a year. These factors, coupled with slowing inflation, improved home purchase sentiment as well as improved home builder sentiment. The slightly improved, though still historically low, home buyer and home builder sentiment allowed for a surge in single-family home construction activity. Lumber prices fell as low as $375 per board foot in December as well, giving builders wiggle room to flex to the market’s demands. Diana Olick of CNBC reports on home builder sentiment, quoting NAHB chairman Jerry Konter as stating “[i]t appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales…The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.” Orphe Divounguy of Zillow notes that homebuilders are pumping the brakes on home construction due to the rise in inflation and interest rates. That said, more homes were under construction last year than at any time since 2006, and slightly lower interest rates may spur buyers to jump back into the market. Indeed, Brooklee Han of HousingWire reports that “[l]ooking ahead, despite homebuilder confidence rising for the first time in a year in January, homebuilders—especially single-family homebuilders—are still pulling back. Building permits were issued at an annual rate of 1.33 million in December, down 1.6% from November and 29.9% from December 2021.”