The Nail, August 2023

THE NAIL

The official magazine of Home Builders Association of Middle Tennessee President

Brandon Rickman

Vice President Jim Hysen

Secretary/Treasurer

Kelly Beasley

Executive Vice President John Sheley

Editor and Designer Jim Argo

Staff

Connie Nicley

Kim Grayson

THE NAIL is published monthly by the Home Builders Association of Middle Tennessee, a non-profit trade association dedicated to promoting the American dream of homeownership to all residents of Middle Tennessee.

SUBMISSIONS: THE NAIL welcomes manuscripts and photos related to the Middle Tennessee housing industry for publication. Editor reserves the right to edit due to content and space limitations.

POSTMASTER: Please send address changes to: HBAMT, 9007 Overlook Boulevard, Brentwood, TN 37027. Phone: (615) 377-1055.

NAHB Chief Economist Robert Dietz provides an update on the housing market detailing economic trends and forecasting industry activity

New home sales cool in June on higher mortgage rates

Rising mortgage rates and elevated construction costs put a damper on new home sales last month.

Sales of newly built, single-family homes in June fell 2.5% to 697,000 seasonally adjusted annual rate from a downwardly revised reading in May, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. However, new home sales are up 23.8% from a year ago.

“Rising mortgage rates in June, coupled with elevated construction costs and supply chain issues for electrical transformers, acted as headwinds on the new home sales market,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala.

“Demand for new homes cooled in June primarily due to a more than quarter-point rise in mortgage rates over the previous month,” said Danushka Nanayakkara-Skillington, NAHB’s

The lack of existing inventory and the Federal Reserve nearing the end of its rate hikes signal that demand for new homes may rise in coming quarters.

assistant vice president for forecasting and analysis. “However, the lack of existing inventory and the Federal Reserve nearing the end of its rate hikes signal that demand for new homes may rise in the coming quarters.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the June reading of 697,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in June was 432,000, down 3.6% compared to a year ago. This represents a 7.4 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Of that total inventory, 67,000 were completed, ready-to-occupy homes, up 91.4% from a year ago; however, that inventory type remains just 15% of total inventory.

The median new home sale price in June was $415,400, down roughly 4% compared to a year ago.

Regionally, on a year-to-date basis, new home sales are up 4.7% in the Northeast and 3.2% in the South. New home sales are down 7.6% in the Midwest and 16.5% in the affordability-challenged West n

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Single-family starts decline in June but permits post solid gain

Single-family production fell back after four straight monthly gains as elevated construction costs and rising mortgage rates led to a reduction in home building activity and affordability conditions worsened for home buyers.

Overall housing starts in June decreased 8% to a seasonally adjusted annual rate of 1.43 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The June reading of 1.43 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 7% to a 935,000 seasonally adjusted annual rate. Single-family starts are also 7.4% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, decreased 9.9% to an annualized 499,000 pace.

“Housing starts posted a monthly decline in June as tightening monetary policy helped

push mortgage rates up more than a quarter-point over the past month,” said Alicia Huey, NAHB chairman. “Policymakers need to remove regulatory bottlenecks that impede the housing industry’s ability to increase the production of quality, affordable housing.”

“While builders have slowed construction activity as interest rates have approached 7%, we anticipate mortgage rates will stabilize later this year in anticipation of the end of Federal Reserve’s tightening cycle,” said Danushka Nanayakkara-Skillington, NAHB’s assistant

Builders confidence edges up despite rising rate concerns

Low existing inventory that is keeping demand solid for new homes helped to push builder confidence up in July even as the industry continues to grapple with rising mortgage rates, elevated construction costs and limited lot availability.

Builder confidence in the market for newly built single-family homes in July posted a onepoint gain to 56, according to the NAHB/Wells Fargo Housing Market Index (HMI) released today. This is the seventh straight month that builder confidence has increased and marks the highest level since June of last year.

“The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers,” said NAHB Chairman Alicia Huey. “At the same time, builders are troubled over rising mortgage rates approaching 7% and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability.”

“Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” said NAHB Chief Economist Robert Dietz.

Given that shelter inflation accounts for roughly 40% of the Consumer Price Index, Dietz added the best way to ease this largest source of inflationary pressure is to build additional for-rent and for-sale housing. “There’s been some commentary linking gains for housing construction with increased concerns for additional inflation, but this has the economics backwards,” he said. “More housing supply is good news for future shelter inflation readings in the market. Furthermore, higher interest rates increase the cost of financing for building homes and developing lots.”

The July HMI survey also revealed that despite elevated interest rates, builders’ use of sales incentives has declined, as the market has firmed

vice president for forecasting and analysis. “In turn, this could bring home buyers back to the market as affordability conditions improve. And in another sign of cautious builder optimism, single-family permits registered their highest pace since June 2022.”

The number of single-family units under construction is down 17% compared to a year ago at 688,000. Meanwhile, the number of apartments under construction increased to 994,000, the highest total since May 1973.

On a regional and year-to-date basis, combined single-family and multifamily starts are 13.9% lower in the Northeast, 19.4% lower in the Midwest, 11.5% lower in the South and 21% lower in the West.

Overall permits decreased 3.7% to a 1.44 million unit annualized rate in June. Single-family permits increased 2.2% to a 922,000 unit rate but are down 21.5% year-todate. Multifamily permits decreased 12.8% to an annualized 518,000 pace, the lowest level since October 2020.

Looking at regional permit data on a yearto-date basis, permits are 23.4% lower in the Northeast, 20.8% lower in the Midwest, 16.2% lower in the South and 23.6% lower in the West n

and resale inventory options remain limited. Only 22% of builders report cutting prices in July. This is down from 25% in June and 27% in May.

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI index gauging current sales conditions in July rose one point to 62, the component charting sales expectations in the next six months fell two points to 60, and the gauge measuring traffic of prospective buyers increased three points to 40, the highest reading since June of last year. However, the decline for the future sales expectation reading is a reminder that housing affordability continues to be challenged by elevated interest rates.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased five points to 52, the Midwest edged up two points to 45, the South increased three points to 58 and the West posted a five-point gain to 51. n

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Housing industry sees market diverging

In his biweekly newsletter Eye on the Economy, NAHB Chief Economist Robert Dietz provided the following overview of the housing industry:

As the Federal Reserve digests the latest inflation and labor market data, the housing market is diverging. Single-family construction is moving off cycle lows, while multifamily development is slowing after an unexpectedly strong run.

Interest rates moved sharply higher at the start of July and then pulled back as the bond market attempted to predict the final actions by the Federal Reserve for this tightening cycle. From the end of June until the first week of July, the 10-year Treasury rate increased from 3.7% to almost 4.1%. This lifted the average 30-year fixed-rate mortgage to almost 7%, per the Freddie Mac weekly survey. These higher rates were because of hawkish commentary from Fed officials indicating multiple, additional federal funds rate hikes were set for the coming months.

But it’s the inflation data that matter: The June Consumer Price Index data brought good news, with consumer inflation moving down to a 3% year-over-year growth rate. Moreover, the internals indicate additional declines lay ahead, as the Fed attempts to bring inflation closer to 2%. Shelter inflation (rent and home owners’ imputed rent) accounted for a striking 70% of the inflation gain in June

However, shelter inflation growth will decline in the months ahead as an above-trend level of apartments under construction are completed. Moreover, the Producer Price Index business inflation measure for May indicate only a 1.1% year-over-year gain, with residential construction material pricing up only 0.5% on a year-todate basis in 2023.

Taken together, the recent inflation data show slowing price growth, with more ahead. Consequently, the bond market repriced interest rates in mid-July, with the 10-year Treasury rate returning to below 3.8%. NAHB’s outlook is that this is consistent with a Fed rate increase in July and a 50-50 chance of a final increase in September According to this forecast, mortgage rates reached their peak last fall.

The NAHB/Wells Fargo Housing Market Index (HMI) continued to reflect growing but cautious optimism among builders. Low existing inventory, which is bolstering demand for new homes, helped push builder confidence up in July to a level of 56. Sentiment has continued to improve even as the industry grapples with rising mortgage rates, elevated construction costs and limited lot availability. This was the HMI’s highest reading since June 2022.

Mirroring this improvement, single-family permits increased 2.2% to an annual rate of 922,000. Although down 2.7% compared to a year ago, this was the best reading in a year. Meanwhile, single-family starts are down more than 7% compared to a year ago.

In contrast, multifamily permits decreased 12.8% to an annualized 518,000 pace, down 31.2% compared to June 2022. The June pace for multifamily permits is at its lowest level since late 2020. It appears the widely expected slowdown for multifamily construction has begun.

But in the meantime, multifamily completions will remain elevated. There are 994,000 apartments under construction, the highest number since 1973. And multifamily completions are up more than 25% compared to a year ago — a good sign for the shelter inflation reading that will help determine monetary policy in the months ahead. n

Twenty-two SPIKES (in bold) increased their recruitment numbers last month. What is a SPIKE? SPIKES recruit new members and help the association retain members. Here is the latest SPIKE report as of June 30, 2023.

AUGUST CALENDAR

CHAPTERS & COUNCILS

CHAPTERS

CHEATHAM COUNTY CHAPTER

Chapter President - Roy Miles

Cheatham County Chapter details are being planned. Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

DICKSON COUNTY CHAPTER

Chapter President - Mark Denney

Dickson County Chapter details are currently being planned. Next meeting: to be announced.

Price: FREE, lunch dutch treat.

RSVP to: cnicley@hbamt.org

MAURY COUNTY CHAPTER

Chapter President - Lisa Underwood

Maury County Chapter details are currently being planned. Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

METRO/NASHVILLE CHAPTER

Chapter President - Tonya Esquibel

The Metro/Nashville Chapter typically meets on the third Tuesday of the month, 11:30 a.m. at the HBAMT offices. Next meeting: to be announced.

Topic: to be announced.

RSVP to: cnicley@hbamt.org

ROBERTSON COUNTY CHAPTER

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

SUMNER COUNTY CHAPTER

Chapter President - Joe Dalton

The Sumner County Chapter typically meets on the fourth Tuesday of the month, 11:30 a.m. at the new Hendersonville Library.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

WILLIAMSON COUNTY CHAPTER

Chapter President - Christina James

The Williamson County Chapter typically meets on the third Tuesday of the month, 11:30 a.m. at the HBAMT offices.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

WILSON COUNTY CHAPTER

Chapter President - Margaret Tolbert

The Wilson County Chapter typically meets on the second Thursday of the month at varying locations in the Wilson County area.

Next meeting: Thursday, September 14th.

RSVP to: cnicley@hbamt.org

COUNCILS

HBAMT REMODELERS COUNCIL

Council President - Eli Routh

The HBAMT Remodelers Council meets at varying locations throughout the year.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

INFILL BUILDERS COUNCIL

Infill Builders Council details are currently being planned.

Next meeting: to be announced.

MIDDLE TENN SALES & MARKETING COUNCIL

Council President - Kelvey Benward

The SMC typically meets on the first Thursday of the month, 9:00 a.m. at the HBAMT offices.

Next meeting: Thursday, August 3rd at the HBAMT.

Topic: “Everyday Teachings to Reflect Upon.”

Meeting sponsored by:

Piedmont Natural Gas and Movement Mortgage

AUGUST MEETING SOLD OUT! Details coming soon about the SMC’s next meeting in September.

RSVP to: cnicley@hbamt.org