{"id":163033,"date":"2023-12-04T13:29:59","date_gmt":"2023-12-04T20:29:59","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=163033"},"modified":"2023-12-04T13:30:02","modified_gmt":"2023-12-04T20:30:02","slug":"builder-confidence-falls-for-fourth-month-straight","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/builder-confidence-falls-for-fourth-month-straight","title":{"rendered":"Builder Confidence Falls for the Fourth Month in a Row\u2014What\u2019s Going On?"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">The&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.nahb.org\/news-and-economics\/housing-economics\/indices\/housing-market-index\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">National Association of Home Builders (NAHB)\/Wells Fargo Housing Market Index (HMI)<\/span><\/a><span data-preserver-spaces=\"true\">, released last week, showed a six-point drop in builder confidence. This is the fourth consecutive drop recorded this year. Builder confidence has fallen a total of 22 points since July and is currently at 34, the lowest level since December 2022.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">These stats are unsurprising, given the economic climate throughout 2023, with signs of improvement only just beginning to emerge.<\/span><\/p>\n\n\n\n\n\n\n  <div class=\"lg:block\" x-data=\"{ ad_block_block_656e36861e083: popAds(1) }\">\n      <template x-for=\"ad in ad_block_block_656e36861e083\">\n        <a\n          :href=\"ad.linkURL\"\n          class=\"no-underline text-black\"\n          x-on:click=\"adClicked('https:\/\/www.biggerpockets.com\/blog\/builder-confidence-falls-for-fourth-month-straight', ad.sponsor, ad.title, ad.id, 'blockAdClicked', 'blockAd', '')\"\n          target=\"_blank\">\n          <div\n            class=\"py-4 border-b flex flex-col flex-nowrap text-sm border-t px-0 rounded-none\"\n            x-init=\"\n              analytics.track('blockAdLoaded', {\n                referrer: 'https:\/\/www.biggerpockets.com\/blog\/builder-confidence-falls-for-fourth-month-straight',\n                sponsor: ad.sponsor,\n                ad_title: ad.title,\n                ad_page_location: ''\n              })\n            \"\n            x-intersect:enter.once=\"adViewed('https:\/\/www.biggerpockets.com\/blog\/builder-confidence-falls-for-fourth-month-straight', ad.sponsor, ad.title, ad.id, 'blockAdViewed', 'blockAd', '')\">\n            <div><span class=\"text-xs text-slate-light block bg-slate-50 p-1 inline-block rounded-md\">Sponsored<\/span><\/div>\n            <div class=\"flex items-center text-sm space-x-4\">\n                <img :src=\"ad.imageURL\" :alt=\"ad.imageAlt\" class=\"h-10 w-10 object-cover rounded-full\">\n\n                <div clas=\"text-sm\">\n                    <span class=\"font-bold block\" x-text=\"ad.sponsor\"><\/span>\n                    <span class=\"text-slate\/80\" x-text=\"ad.description\"><\/span>\n                <\/div>\n            <\/div>\n\n            <div>\n                <span class=\"font-bold\" x-text=\"ad.title\"><\/span>\n                <p class=\"mt-2 text-slate\/80\" x-text=\"ad.body\"><\/p>\n                <span class=\"mt-2 text-themeBlue block mt-2 underline\" x-text=\"ad.linkTitle\"><\/span>\n            <\/div>\n          <\/div>\n        <\/a>\n      <\/template>\n  <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What\u2019s Going On in the Construction Industry?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">A perfect storm of factors has created the current low-confidence mood in the construction sector. Ongoing building supply issues, rising costs, and labor shortages are rocking the industry.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But while all of these problems began during the pandemic, builder confidence remained high so long as low interest rates kept the housing boom going (i.e., buyers kept buying whatever was available). Builder confidence stood at 84 in December 2021\u2014a whopping 50 points above the current level.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Jonathan Ayala, founder and CEO of&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/hudsoncondos.com\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Hudson Condos<\/span><\/a><span data-preserver-spaces=\"true\">, confirms that things indeed have been tough for builders in 2023: \u2018\u2019We face immense headwinds, ranging from prohibitively high mortgage rates stifling buyer demand to suffocating construction costs and buildable land shortages squeezing margins,\u2019\u2019 he told BiggerPockets.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">It is notable that the results of the November index are based on data collected before the latest Consumer Price Index release, which shows that inflation is decreasing. However, while the improvement in inflation rates may be signaling an interest rate easing next year, which will help the construction industry, this economic indicator alone may not be enough to restore builder confidence fully.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Ayala is firmly of the opinion that \u2018\u2019while rate relief could boost activity at the margins, the only viable path forward relies on coordinated policy intervening around land-use regulations, materials costs, trade talent shortages, and infrastructure financing.\u2019\u2019<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">While there may be some signs that&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/home-depot-q3-2023-earnings-is-good-news-for-investors\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">the costs of building materials are stabilizing<\/span><\/a><span data-preserver-spaces=\"true\">, the construction labor market has a long way to go before it closes the severe supply-demand gap for workers. Last year, the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.agc.org\/sites\/default\/files\/users\/user21902\/2022_Workforce_Survey_National_Autodesk_M%20(2).pdf\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Associated General Contractors of America<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;survey revealed that 91% of contractors reported having trouble filling positions. The construction industry still needs an additional 546,000 workers to meet the demand for new homes in 2024.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The problem is not as simple as the industry struggling to meet demand, though. High building costs, coupled with high mortgage interest rates, translate into homes that are ultimately&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/on-the-market-145\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">unaffordable<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;for buyers.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Can Builders Do?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">In response, builders can offer sales incentives\u2014and the November NAHB Index shows that 60% of builders did so, with 36% cutting their home prices. The number of builders who slashed their home prices was up from 32% in the previous two months.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The price reduction tactic works, but only up to a point. Builders who lack confidence in their construction projects&#8217; profitability eventually scale down their building operations. Buyers (and investors) end up with a scarce inventory of expensive homes. It\u2019s a catch-22 dynamic in which the whole new housing start ecosystem suffers.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Ayala\u2019s summary of where the home development sector stands now is that \u2018\u2018until underlying profitability prospects improve, development enters a risky footing, jeopardizing housing access further.\u2019\u2019<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Of course, this worst-case scenario isn\u2019t the only probable one. The NAHB is still forecasting a 5% increase for single-family starts in 2024 as financial conditions improve. In particular, the much-anticipated interest rate easing, which may follow an anticipated reduction in inflation rates in the spring of 2024, is likely to return many buyers to the housing market. This, in turn, should improve builder confidence and increase both profitability and, ultimately, new construction figures.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">According to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.nahb.org\/news-and-economics\/press-releases\/2023\/11\/builder-sentiment-down-again-but-better-building-conditions-are-in-view#:~:text=Builder%20confidence%20in%20the%20market,lowest%20level%20since%20December%202022\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">NAHB chief economist Robert Dietz<\/span><\/a><span data-preserver-spaces=\"true\">, \u2018\u2019While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months.\u2019\u2019 The big hope right now is for mortgage rates to go below 7.5%, which \u2018\u2019will price-in housing demand and likely set the stage for improved builder views of market conditions in December.\u201d&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">While builder confidence may take a while to get back to its 2021 levels, any improvement will be a much-needed step in the right direction at the end of 2023.<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_68d75f9b8032956336e285cd18cddbf0\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_7b2c43d8c6632a14b83f099659e559ad\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_bc4ed60b2a61e2d70054ca0fc0fe4e06 class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Lender Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/builder-confidence-falls-for-fourth-month-straight&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/builder-confidence-falls-for-fourth-month-straight&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>A new report shows that builder confidence continues to drop. What does this mean for the supply gap in housing?<\/p>\n","protected":false},"author":613618,"featured_media":163036,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-163033","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/163033","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613618"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=163033"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/163033\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/163036"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=163033"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=163033"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=163033"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}