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Home Builders Remain Optimistic Despite Market Headwinds

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Home Builders Remain Optimistic Despite Market Headwinds

Buyers are retreating as mortgage rates rise, but home builders are looking ahead to strong growth in the new-home market in 2023

March 20, 2023
Home builder standing in front of house under construction
Image: seanlockephotography / stock.adobe.com

Not only did elevated costs for building materials put a damper on new-construction projects in February, but rising mortgage rates and concerns about the overall economy continued to shrink an already waning pool of prospective homebuyers. Still, home builder confidence is on the rise. Single-family home construction posted a modest 1.1% gain in February on a seasonally adjusted annual basis with just 830,000 single-family units started, but the pace of new construction could soon accelerate, the National Association of Realtors reports.

A lack of existing inventory is shifting buyer demand toward the new-home market, and that trend could pick up steam if interest rates stabilize in the months ahead.

“A significant amount of housing demand exists on the sidelines,” says NAHB Chairperson Alicia Huey. “Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they report strong pent-up demand as buyers wait for interest rates to drop.”

But the latest wild card: jitters over the nation’s financial system after the recent collapse of three banks. But that could reduce long-term interest rates, which “will help housing demand in the coming weeks,” [Robert] Dietz says. “The cost and availability of housing inventory remains a critical constraint for prospective home buyers.”

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