Is Builder Confidence Decreasing?
The national housing market index (HMI) has dropped once again, making this the fourth consecutive month that builders’ confidence has decreased in the U.S. The decline started from December where the index has slowly decreased from 84 to 79. NAHB Chief Economist, Robert Dietz, has stated that the “impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.” However, the same may not be said for the state of Florida.
The NAHB Wells Fargo Housing Market Index asks builders to rate housing market conditions based on their experiences. The builders rate their sales expectations from “good” to “poor,” and rate traffic of prospective buyers from “very high” to “very low.” These responses are then placed into a formula to produce an index. About 400 responses are obtained each month.
Why should we listen to this survey? Builders, with their experience and close contact with local market conditions, provide information about current housing market conditions and how home sales are likely to behave in the future. This is why Wall Street firms, the Federal Reserve, and other government officials have used the HMI over the past few years.
The HMI has contributed this hesitancy to the increase in price of lumber and other building materials. Lumber prices have increased dramatically since 2020, going from $242.80 to $1,193.00 per thousand board feet. This has driven construction costs up by 20% over the span of 12 months. There is also an expectation for higher interest rates as the year progresses. With all this in mind, we can see why builders’ confidence has continued to decrease nearly everywhere in the United States except Florida.
We have seen approved construction sites in North Miami, a Broward trailer park marked for redevelopment, and new sales for an oceanfront condo in Miami Beach just this month alone. Let’s not forget about the multi-million, lavish Florida condo on top of the Tiffany & Co. in Palm Beach. Four of the six largest hotel markets in the U.S. since 2019 consist of Jacksonville, Miami, Tampa, and Ft. Lauderdale. Despite the pandemic, Florida’s population growth of 360,758 between April 1, 2020 and April 1,2021 was the strongest annual increase since 2005-2006. Between 2021 and 2025, Florida’s growth is forecasted to average 1.41%.
All in all, with the population increase and steady tourism markets, Florida homebuilders should be optimistic as buyer demand remains solid.
“Lumber2022 Data - 1978-2021 Historical - 2023 Forecast - Price - Quote - Chart.” Lumber - 2022 Data - 1978-2021 Historical - 2023 Forecast - Price - Quote - Chart, https://tradingeconomics.com/commodity/lumber.
“NAHB: Examining the NAHB/Wells Fargo Housing Market Index (HMI).” Www.nahbclassic.org, www.nahbclassic.org/generic.aspx?sectionID=734&genericContentID=73820&channelID=311&_ga=2.46718564.251118127.1647704155-1365678725.1647511044. Accessed 25 Mar. 2022.
The Florida Legislature Office of Economic and Demographic Research 850. Vol. 487, 2022, p. 1402, edr.state.fl.us/Content/presentations/economic/FlEconomicOverview_2-17-22.pdf. Accessed 25 Mar. 2022.
“CoStar News - Miami Hotels Seeing Strong Recovery.” Product.costar.com, product.costar.com/home/news/shared/47279014?culture=en-US&source=sharedNewsEmail. Accessed 25 Mar. 2022.
“CoStar News - Breakfast above Tiffany’s? Unique Retail Rehab with Luxury Penthouse Makes It Possible.” Product.costar.com, product.costar.com/home/news/shared/779379527?culture=en-US&source=sharedNewsEmail. Accessed 25 Mar. 2022.
“Builders’ Confidence Dips Four Months in a Row.” Florida Realtors, www.floridarealtors.org/news-media/news-articles/2022/03/builders-confidence-dips-four-months-row. Accessed 25 Mar. 2022.