One of the biggest themes for the housing market in 2023 was “lack of inventory.” Low supply is one of the primary issues in the housing market that needs to be addressed to achieve a healthy market. There aren’t enough homes being built nationwide based on the demand that is out there in the market. Let’s take a look at how the home building industry is feeling about the market in the coming year.
According to the National Association of Home Builders, 36% of builders stated that they cut the cost of new construction by 6% on average to help bolster sales in December. Roughly 60% of builders offered incentives such as assistance towards closing costs to try and attract more buyer clients amid the elevated mortgage rates. Each month, the National Association of Home Builders and Wells Fargo publish a housing market index report analyzing the builder sentiment for that given month.
“The NAHB/Wells Fargo Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.”
The HMI rose for the first time in four months to 37 as the average weekly mortgage rate declined throughout December. This indicates that home builders are starting to feel more optimistic about conditions in the 2024 market, and much of this is likely driven by the pent-up demand that is out there in addition to falling mortgage rates.
The housing market plays a huge role in the health of the economy. The number of building permits is an economic indicator to determine how the construction industry will perform and meet the current demand. According to the recent Census data, Virginia had 2,673 approved building permits in November, 1,640 being single-family homes and 1,033 multifamily. From January to November 2023, there have been 32,871 total building permits. This is 9.7% lower than this time last year, which reflects 3,547 fewer building permits.
Home builders were pretty optimistic about market conditions throughout most of the summer season in 2023, but when rates began to reach near the 8% mark, many became uneasy about what would unfold in the future. Another reason why home starts and building permits have slowed is because of the lack of skilled labor. Many contractors have job availability but struggle to fill the positions. According to the Associated Builders and Contractors, the construction industry needed 546,000 additional workers to meet the demand for labor. Despite all the turmoil in the real estate industry, many home builders across the nation are optimistic about the industry in 2024 as there are signs that rates may slowly decrease, which will likely fuel potential buyers to enter the market.