Despite Labor Shortages and Supply-Chain Woes

• The NAHB Housing Market Index showed improvement in homebuilder confidence in November, better than consensus expectations for unchanged confidence.
• Responders saw better current sale conditions, steady future sale conditions and better traffic of prospective buyers.
• Strong demand will continue to support residential construction, but labor shortages and supply chain disruptions will remain downside risks in the short term.
  

The NAHB Housing Market Index edged up to 83, a six-month high, in November from 80 in October, better than consensus expectations for unchanged confidence. This was the third straight month of improving confidence. The index remains well above the 50-point threshold, indicating good building conditions in the single-family construction market.

Details of the report were good. The current sales conditions component which makes up 60% of the NAHB HMI advanced to 89 from 86 in October; the future (next six months) sales conditions component was steady at 84 and the prospective buyers traffic component rose to 68 from 65 in October. There were jumps in the NAHB index in the Midwest, South and West but it fell in the Northeast. Builder confidence in the South increased to a year-high 87.

Despite the improvement in builder confidence, labor shortages and supply chain disruptions continue to weigh on builders. Pandemic-induced migration patterns increased the demand for single-family homes and exacerbated longstanding supply shortages. Meanwhile, employment in the construction sector (residential, nonresidential, and heavy and civil engineering construction) has improved this year but is still 150,000 below the February 2020 level.

Employment in residential construction (construction of residential buildings and residential specialty trade contractors) has recovered faster and is 3% above the pre-crisis level. The NAHB noted that “lack of resale inventory combined with strong consumer demand continues to boost single-family home building.” Looking forward, the demand for single-family homes will cool in the next year as decreasing affordability and rising mortgage rates weigh on potential buyers. Labor shortages and supply-chain bottlenecks should ease as the pandemic subsides and more workers return to the labor force.

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