After Subdued Summer, Home Building Shows Slight Rebound for Fall

September 27th, 2021 by Drew Vass

After a subdued period led by supply chain issues and inflated pricing for materials, numerous indicators for home building and builder confidence rebounded in recent weeks, filing in with architectural billings. The Architecture Billings Index (ABI) recorded its seventh consecutive positive month, according to the American Institute of Architects (AIA). The ABI score for August was 55.6, a full point higher than July. Any score above 50 indicates an increase in architectural billings from the prior month. Meanwhile, new project inquiries and design contracts “moderated slightly,” AIA officials said, but “remained in positive territory,” posting scores of 64.7 and 56.6 respectively.

“The surge in design activity continued in August, signifying an expected upturn in construction activity in the fourth quarter and continuing into 2022,” said AIA chief economist Kermit Baker, Ph.D. “This expected expansion will magnify the already serious problems of price inflation and availability of many construction products and materials, as well as the emerging labor shortages in the industry.”

According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), so far those issues haven’t managed to rattle builders heading into the fall season. Instead, builder confidence rose to a measure of 76 in September, NAHB reported, a point higher than August, ending a prior three-month decline. A higher September reading was spurred by the easing of costs for some materials, including softwood lumber, NAHB officials suggested.

The Housing Market Index (HMI) is based on a monthly survey of NAHB members that has been conducted for 30 years and was 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 present and in the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good rather than poor.

A rise in confidence also has builders breaking ground on more homes. Privately‐owned housing starts in August were at a seasonally adjusted annual rate of 1,615,000, 3.9% above the revised July estimate of 1,554,000 and 17.4% above the August 2020 rate of 1,376,000. Single‐family housing starts in August were at a rate of 1,076,000, 2.8% below the revised July figure of 1,107,000.

“New home starts recovered in August, following a brief period of decline in July due to supply chain issues,” said Kelly Mangold of RCLCO Real Estate Consulting in Bethesda, Md. “Additionally, the backlog of homes authorized but not started has grown to record levels over the late spring and summer, and as builders are able to secure materials and labor it is not surprising to see starts begin to pick back up.”

Privately‐owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,728,000—6% above the revised July rate of 1,630,000 and 13.5% above the August 2020 rate of 1,522,000. Single‐family authorizations in August were at a rate of 1,054,000, 0.6% above the revised July figure of 1,048,000.

In the meantime, an ongoing backlog for housing, “is a promising metric,” Mangold said. “And while some of the pipeline of units may be canceled, it is likely that a good share of the backlog will make it to market due to robust housing demand,” she added.

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