Ongoing supply-demand imbalance drives housing activity

Homebuilder confidence edged higher in December because of strong consumer demand and lack of inventory, according to the NAHB/Wells Fargo Housing Market Index. The supply-demand imbalance propelled housing activity in 2021; however, homebuilders continue to face headwinds from supply-chain disruptions, labor shortages, and expensive building materials. These factors are likely beginning to curb new construction growth, which has plateaued in recent months. The trailing three-month outlook (October to December 2021) for single-family housing authorizations remained relatively flat at a rate of 0.47% year over year. While new housing construction has experienced tremendous growth in 2021, it’s a drop in the bucket compared to what is needed. The current supply of homes on the market remains historically low.

The supply-demand imbalance has also put upward pressure on home prices. Many homeowners choose to invest in their existing properties rather than re-enter the competitive housing market. Existing housing activity has been particularly robust in 2021; however, remodel projects have dipped in recent months. It is possible that rising building material costs, like lumber, have deterred homeowners from embarking on large-scale projects.

Entering 2022, we’re closely watching how expected increases in interest rates to combat inflation might impact the housing market.

Download the latest BuildFax Housing Health Report to see how housing activity fared in December.