The housing market has been on a tear in recent years, with home prices soaring and demand outpacing supply. This has been a boon for home builders, who have been able to sell homes at record prices. However, rising interest rates have raised concerns that the housing market could cool off. Despite these concerns, home builder confidence remains strong. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose to 56 in July, marking the seventh consecutive month that sentiment increased. This is the highest level of builder confidence since June of last year.
Reasons for home builder confidence
- The demand for new homes is still very strong. This is due to the fact that there is a limited supply of existing homes on the market
- Home builders are able to pass on rising construction costs to buyers, thanks to the high demand for new homes.
- Home builders are getting better at managing supply chain challenges.
Potential headwinds for home builders
Of course, there are some headwinds facing the housing market. Rising interest rates could make it more difficult for buyers to afford homes. Additionally, the Federal Reserve is expected to continue raising interest rates in an effort to combat inflation. This could further cool the housing market.
Summary
It is expected that as long as the inventory of existing homes for sale remains low, home builders will remain bullish in their outlook. Needless to say, more and more qualified home buyers look to new construction when they are not able to find a suitable existing home to meet their needs. This lack of inventory should maintain high demand levels for new construction.
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