Despite rising costs and labor shortages, home builders remain optimistic

Justin Ho Dec 16, 2021
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Demand is one of the driving forces behind home builders' improving optimism. Getty Images

Despite rising costs and labor shortages, home builders remain optimistic

Justin Ho Dec 16, 2021
Heard on:
Demand is one of the driving forces behind home builders' improving optimism. Getty Images
HTML EMBED:
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Later this morning, we’ll get data on how many home construction projects were started in November. We know that some building materials have been in short supply and builders have had a hard time finding workers. That said, a new index from the National Association of Home Builders and Wells Fargo found that builder confidence rose in December.

Home builder confidence is rising because builders know there’s a lot of demand for what they do.

“The existing home inventory is quite low, and that is supporting demand for new construction,” said Robert Dietz, chief economist with the National Association of Home Builders.

That low inventory of homes gives home builders a lot of leverage, said Mark Vitner, senior economist at Wells Fargo. As a result, he said, builders are more likely to focus on constructing homes with higher profit margins.

“So we’re seeing a lot more interest in building larger, more expensive homes,” Vitner said, adding that a lot of big investors have been interested in buying rental housing — entire neighborhoods of homes built to be rented.

“From a home builder perspective, that offers economies of scale. Because they’re building a lot of homes in close proximity to each other. They have a better idea of what they need to order,” he said.

Vitner said that’s good news for builders, but not so much for potential home buyers — they may have a harder time competing with investors for new homes.

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