The Nail, February 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

Hannah Garrard

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.

The popular wine tasting event returns March 1st to historic Travellers Rest in Nashville. RSVP now, limited seating!

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Top features and design trends for 2023

Home buyer preferences have continued to shift home building trends in the wake of COVID-19. Here’s what’s new in 2023. 10

Building materials price growth slowed in 2022

According to the latest PPI Report, building materials prices declined 0.3% in December, the fourth consecutive monthly decrease.

New home sales inch higher in December

While new home sales posted a modest gain in December, elevated mortgage rates and higher construction costs continue to hinder housing affordability and put a damper on consumer demand.

Sales of newly built, single-family homes in December increased 2.3% to a 616,000 seasonally adjusted annual rate from a downwardly revised reading in November, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales were down 16.4% in 2022 compared to the previous year.

“Builder incentives and declining mortgage rates during the month of December helped push new home sales up for the month,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga. “However, because of higher construction costs and decreasing affordability, sales are down more than 25% compared to a year ago.”

“In a further sign of decreasing housing affordability, even though the median home price is down for the second straight month, it is still up 7.8% compared to last year,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecast-

ing and analysis. “Elevated inventories are another concerning sign of a soft market.”

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 December reading of 616,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory remained elevated at a 9 months’ supply (of varying stages of construction). A measure near a 6 months’ supply is considered balanced. The count of homes available for sale, 461,000, is up 18.5% over last year.

A year ago, there were just 33,000 completed, ready to occupy homes available for sale. By December 2022, that number increased 115% to 71,000, reflecting flagging demand and more standing inventory due to lower sales. Completed, ready to occupy inventory however, remains just 15% of total inventory.

The median new home sale price in December was $442,100, down 3.7% from November, however, it is still up 7.8% compared to last year due to higher construction costs.

Regionally, on a year-to-year basis, new home sales fell in all four regions, down 8.2% in the Northeast, 22.1% in the Midwest, 13.0% in the South and 23.5% in the West. n

Builder confidence uptick signals turning point

Amodest drop in interest rates helped to end a string of 12 straight monthly declines in builder confidence levels, although sentiment remains in bearish territory as builders continue to grapple with elevated construction costs, building material supply chain disruptions and challenging affordability conditions.

Builder confidence in the market for newly built single-family homes in January rose four points to 35, according to the NAHB/ Wells Fargo Housing Market Index (HMI) released today.

“It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” said NAHB Chairman Jerry Konter. “The rise in build-

er sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.”

“While NAHB is forecasting a decline for single-family starts this year compared to 2022, it appears a turning point for housing lies ahead,” said NAHB Chief Economist Robert Dietz. “In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability. Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units.”

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gaug-

Single-family housing starts edge higher

Single-family housing starts posted a double-digit percentage gain in December, but production is running well below a rate of 1 million units annually, indicating ongoing weakness in the housing market as high construction costs and elevated interest rates continue to present affordability challenges.

Led by a decline in multifamily production, overall housing starts decreased 1.4% to a seasonally adjusted annual rate of 1.38 million units in December, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The December reading of 1.38 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 increased 11.3% to a 909,000 seasonally adjusted annual rate, but are down 25% compared to December 2021. The multifamily sector, which includes apartment buildings and condos, decreased 19% to a 473,000 pace.

Total housing starts for 2022 were 1.55

million, a 3% decline from the 1.60 million total from 2021. Single-family starts in 2022 totaled 1.01 million, down 10.6% from the previous year. Multifamily starts (5+) in 2022 were up 14.5% compared to the previous year and exceeded a 500,000 annual pace for the first time since the Great Recession.

“Even though single-family starts are up on a monthly basis, permits indicate that the housing market will slow down further in 2023,” said Jerry Konter, NAHB chairman. “We expect a sustainable decline for mort-

es builder perceptions of current single-family home sales and sales expectations for 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 than poor.

All three HMI indices posted gains for the first time since December 2021. The HMI index gauging current sales conditions in January rose four points to 40, the component charting sales expectations in the next six months increased two points to 37 and the gauge measuring traffic of prospective buyers increased three points to 23.

Looking at the three-month moving averages for regional HMI scores, the West registered a one-point gain to 27, the South held steady at 36, the Northeast fell four points to 33 and the Midwest dropped two points to 32. n

gage rates in the second half of this year, which should lead to a housing recovery in 2024.”

“The decline in single-family permits indicates that builders are slowing construction activity as interest rates have spiked in recent months,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “Starts began on a strong footing in early 2022 but fell back in the latter part of the year as higher costs led to a pause in home building activity and affordability conditions worsened for home buyers.”

On a regional and year-to-year basis, combined single-family and multifamily starts are 5% higher in the Northeast, 5.7% lower in the Midwest, 1.6% lower in the South and 7.2% lower in the West.

Overall permits decreased 1.6% to a 1.33 million unit annualized rate in December and are down 29.9% compared to December 2021. Single-family permits decreased 6.5% to a 730,000 unit rate and are down 34.7% compared to December 2021. Multifamily permits increased 5.3% to a 600,000 pace.

Looking at regional permit data on a yearto-year basis, permits are 13.6% lower in the Northeast, 3.4% lower in the Midwest, 2.4% lower in the South and 8.3% lower in the West. n

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Top features and design trends for 2023

Home buyer preferences have continued to shift home building trends in the wake of COVID-19. Following a brief uptick in new home sizes in 2021, the average size of a new home dropped slightly from 2,525 square feet to 2,480 square feet in 2022, and the percentage of new homes with 3+ full bathrooms and 3+ car garages dipped to 33% and 17%, respectively. Meanwhile, the percentage of homes with 4+ bedrooms rose slightly to 48%, in part because of the flexibility in use that bedrooms can provide, with the expectation that home size and amenities will continue to grow in 2023 before dropping again in 2024.

“The decrease in new home size reflects the escalation of home prices in 2022 and builders scaling back to try to meet demand,” said Rose Quint, NAHB assistant vice president of survey research. “The move toward larger homes and more amenities in 2023 will reflect the preferences of those who can afford higher interest rates, and in 2024, size will fall back as affordability improves with lower mortgage rates and more buyers re-enter the market.”

Amenities no longer necessarily translate directly to number of rooms or types of features within the home either — it can also be simply having a space within the home that provides respite.

“Home buyers are looking more and more to their homes to provide a sense of well-being,” observed Donald Ruthroff, AIA, founding principal at Design Story Spaces LLC. “They want their homes to support their day-to-day health — physically, emotionally and mentally.”

Builders and designers are achieving this through walking paths and other outdoor spaces connected to the home, as well as the incorporation of natural materials and other examples of biophilic design. Builders saw a large jump in the demand for exterior amenities, such as patios, decks and porches, in 2023, along with increased demand

for home office — which appeared on the list of buyers’ most-wanted features for the first time this year.

Demand was also on the rise for more flexible and better equipped spaces to meet buyers’ changing needs. This is true for both first-time and repeat buyers, the majority of whom prefer an open-kitchen family room. This space, Ruthroff highlighted, can be reconfigured and better utilized to provide more space for additional rooms or allow builders to incorporate higher-end components to increase the feel and function.

“We’re learning that if we use less space, we can spend more on details and finishes to make rooms such as bathrooms feel more luxurious,” he added. “And people will pay a little more for solutions, such as cabinetry add-ons that eliminate dead space, that add utility.”

Other home features that resonate with both first-time and repeat home buyers include:

- Laundry rooms

- Exterior lighting

- Ceiling fans

- Patios

- Walk-in pantries

- Hardwood flooring on the main level

Housing affordability remains a struggle, which home buyers recognize. The majority of home buyers (91%) are willing to compromise to afford a home. The top three areas are:

- A smaller house

- Simpler/more basic interiors

- Fewer exterior amenities n

Building materials price growth slowed in 2022

The producer price index (PPI) for inputs to residential construction less energy (i.e. building materials) rose 8.3% in 2022 (not seasonally adjusted) according to the latest PPI report—less than one-half the increase seen in 2021.

On a monthly basis, building materials prices declined 0.3% in December—the fourth consecutive monthly decrease. After increasing an average of 1.8% per month the first five months of 2022, the index averaged a monthly 0.1% decline from June through December.

Price growth of goods inputs to residential construction, including energy, declined even more sharply over the year due to a historic increase in fuel prices in 2021. Prices increased 8.2% in 2022 after surging 20.8% the prior year.

Softwood Lumber

The PPI for softwood lumber (seasonally adjusted) fell 6.9% in December and 26.1% over the course of 2022. Since increasing the first three months of the year, the softwood lumber index has fallen 45.8%.

Steel Mill Products

Steel mill products prices decreased 2.7% in December, the sixth consecutive decline. After soaring 128% in 2021, prices dropped 28.7% in 2022—25.0% since May.

Gypsum Building Materials

The PPI for gypsum building materials declined 0.2% in December but increased 17.6% over the course of 2022. Although the 2022 price increase was more than three times the 25-year average, it was substantially lower than the 23% increase seen in 2021.

Ready-Mix Concrete

The trend of ready-mix concrete (RMC) prices continued its historic pace as the index increased 1.6% in December. The PPI for RMC increased 13.6% in 2022, twice the 2021 increase and nearly seven times the historical average.

The monthly increase in the national data was broad-based geographically. Prices rose

in all four regions—up 0.5% in the West, 1.1% in the Northeast, 1.6% in the South, and 2.1% in the Midwest. The price of RMC increased the most in the West region in 2022, up 18.8%, but each region experienced double-digit percentage increases over the year.

Services

The price index of services inputs to residential construction was unchanged in December after decreases in October and November. Prices rose 5.6% in 2022 after climbing 10.8% in 2021. In contrast to building materials, the index for services inputs increased

substantially in 2020 as well (+10.0%). The 2020 increase was almost entirely driven by a large increase in building materials retailers’ gross margins.

Transportation of Freight

The price of truck and rail transportation of freight decreased 1.7% and 0.1%, respectively, in December. The index for deep sea (i.e., ocean) transportation of freight climbed 0.6%. Of the three modes of shipping, trucking prices showed the largest slowdown relative to 2021 as the growth rate fell from 17.9% to 8.2%. n

SPIKE REPORT

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 December 31, 2022.

FEBRUARY CALENDAR

CHAPTERS & COUNCILS

CHAPTERS

CHEATHAM COUNTY CHAPTER

Chapter President - Roy Miles

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

Chapter RSVP Line: 615/377-9651, ext. 310

DICKSON COUNTY CHAPTER

Chapter President - Mark Denney

The Dickson County Chapter meets on the third Monday of the month, 12:00 p.m. at Colton’s Steakhouse in Dickson. Next meeting: to be announced.

Price: FREE, lunch dutch treat.

Chapter RSVP Line: 615/377-9651, ext. 264

MAURY COUNTY CHAPTER

Chapter President - Lisa Underwood Maury County Chapter details are currently being planned. Next meeting: to be announced.

Chapter RSVP line: 615-377-9651, ext. 312; for callers outside the 615 area code, 1-800-571-9995, ext. 312

METRO/NASHVILLE CHAPTER

Chapter President - Tonya Esquibel

The Metro/Nashville Chapter 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.

Price: to be announced.

RSVP to: cnicley@hbamt.org

ROBERTSON COUNTY CHAPTER

Next meeting: to be announced. Robertson County RSVP line: 615-377-9651, ext. 313.

SUMNER COUNTY CHAPTER

Chapter President - Joe Dalton

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

Next meeting: to be announced.

Chapter RSVP Line: 615/377-9651, ext. 262

WILLIAMSON COUNTY CHAPTER

Chapter President - Christina James

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

Next meeting: to be announced.

Builders Free pending sponsorship.

Price: $10 per person with RSVP ($20 w/o RSVP).

Chapter RSVP Line: 615/377-9651, ext. 305

WILSON COUNTY CHAPTER

Chapter President - Margaret Tolbert

The Wilson County Chapter meets on the second Thursday of the month, 9:00 a.m. at the Mt. Juliet Chamber of Commerce: 2055 N. Mt. Juliet Road, #200 - 37122.

Next meeting: to be announced.

Topic: to be announced.

HBAMT members free pending sponsorship

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.

Topic: to be announced.

Council RSVP Line: 615/377-9651, ext. 263 RSVP to: cnicley@hbamt.org

INFILL BUILDERS COUNCIL

The Infill Builders Council typically meets on the third Thursday of the month, 11:30 a.m. at the HBAMT offices

Next meeting: to be announced.

Price: to be announced.

RSVP to: 615/377-9651, ext. 265.

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 and topic: Thursday, February 9th.

Topic: “Are Interest Rates Stopping Sales?” A roundtable discussion with top lenders who will share effective tips and techniques to help you overcome this objection and get more people into the homes they want.

SMC members free thanks to Bell Bank Mortgage; non-SMC members $20 w/RSVP, $25 w/o RSVP

RSVP to: cnicley@hbamt.org