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Builders Report Firm Demand Despite Affordability Concerns

Builder confidence has stayed relatively steady, according to the September National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”. The HMI for this month was a solid 67 for confidence in the market for newly built single-family homes., indicating more builders view conditions as good than poor.

“Despite rising affordability concerns, builders continue to report firm demand for housing, especially as millennials and other newcomers enter the market,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, Louisiana. “The recent decline in lumber prices from record-high levels earlier this summer is also a welcome relief, although builders still need to manage construction costs to keep homes competitively priced.”

“A growing economy and rising incomes combined with increasing household formations should boost demand for new single-family homes moving forward,” said NAHB Chief Economist Robert Dietz. “However, housing affordability is becoming a challenge, as builders face overly burdensome regulations and rising material costs exacerbated by an escalating trade skirmish. Interest rates are also forecasted to keep rising.”

Additionally, the NAHB has released their Q2 2018 Housing Opportunity Index (HOI), a measure of affordability by areas, based on the number of homes available that are affordable to families earning the local median income. Nationally, the HOI fell to 57.1 percent in Q2 2018 compared to 61.6 percent in Q1 2018. According to the HOI data, the Index fell slightly year over year as well, down from 59.4 percent in Q2 2017. This is the lowest HOI since the housing crisis in 2008.

On a more local basis, some cities’ local index fares much better than the national index. In Elmira, New York, for example, 97 percent of homes are affordable for the median local income. On the opposite end of the scale and the country, the San Francisco and Los Angeles areas hold the lowest HOI, at 5.5 percent and 8.0 percent respectively.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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