Homebuilders feel more confident because of the surprisingly high level of housing demand in spite of the slow season.

According to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), builders sentiment rose 1 point to 84 for single-family homes in December. It is the fourth consecutive year-end increase, and it ties February’s highest level. Positive sentiment is anything above 50

However, there are concerns about inflation and supply chain disruptions as well as a continuing labor shortage. According to the producer price index, prices for steel, aluminum, and plastic building products increased sharply in November.

According to Chuck Fowke (NAHB Chairman), a Tampa-based homebuilder, “While there is still strong demand, it’s difficult for builders and workers to find skilled labor, predict pricing, and deal with delays.”

The extremely low supply of homes available for sale continues to be a boon for builders. The build-for-rent industry continues to expand and builders are seeing a lot of investor interest. In the third quarter 2021, single-family builds-for-rent reached their highest volume ever recorded.

There will be challenges, particularly given the high price of recent homes. According to U.S. Census, the cost of a new home increased 17.5% in October compared with last year. As the Federal Reserve reduces support for mortgage-backed securities to deal with rising inflation, it is expected that mortgage rates will rise sharply.

Robert Dietz, chief economist at NAHB, stated that 2021 single-family start rates are 24% lower than pre-Covid 2019. However we anticipate higher interest rates for 2022 to put an end to housing affordability.

The HMI has three components. Current sales conditions increased one point, to 90. Buyer traffic rose also one point, to 70. For the third month in a row, sales expectations for the next six-months were unchanged at 84.

Three-month HMI score moving averages show the Northeast rising 4 points to 74, the Midwest increasing 2 points, and the South and West both posting a 3 point gain to 87 respectively.