The Nail, October 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.

FEATURES

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Fall Fest & Builders Show set for October 17th

Builders! RSVP for the HBAMT’s Fall Fest & Builders Show. The annual event returns October 17th. Food & Beverages, Cash Prizes, Vendors Booths ... BUILDERS, RSVP NOW!

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Construction labor key in coming years says market

As the 10-year Treasury rate increases, financial conditions continue to tighten which, along with other factors, will create a need for skilled construction labor moving forward

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Membership contest a chance to win big with HBAMT

The HBAMT Cruise Contest ends this month. Recruit new members and win, check out the details outlined here.

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ON THE COVER:

Recruit new members and join the HBAMT on a Caribbean Cruise next year by taking advantage of this year’s Membership Contest! See page 11 (eleven) for more details.

New home sales weaken in August on higher mortgage rates

Elevated mortgage rates and challenging affordability conditions pushed new home sales down to their weakest rate since March.

Sales of newly built, single-family homes in August fell 8.7% to a 675,000 seasonally adjusted annual rate from an upwardly revised reading in July, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in August was up 5.8% from a year ago.

“Builders continue to grapple with supply-side concerns in a market with poor levels of housing affordability,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Higher interest rates price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building.”

“Sales weakened in August with average mortgage rates above 7%,” said NAHB Chief Economist Robert Dietz. “While some builders were able to offset that effect via mortgage rate buydowns, rates moved higher this month, suggesting the pace of new home sales will weaken further for September.”

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 August reading of 675,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in August was 436,000, down 5.2% compared to a year ago. This represents a 7.8 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Of the total home inventory, including both new and resale homes, newly built homes represent an elevated share of 31% of those available for sale. And nearly 16% of total home sales in August were new homes.

“Builders are being more cautious about managing their inventory in this rising rate environment,” Dietz noted. “A year ago, 10% of the new home inventory listed for sale consisted of homes that had not yet started construction, and that share has now risen to 17% of the total inventory.”

The median new home sale price in August was $430,300, down roughly 2% compared to a year ago. Pricing is down both due to builder incentive use and a shift towards building slightly smaller homes.

Regionally, on a year-to-date basis, new home sales are up 4.8% in the Northeast, 4.4% in the Midwest and 1.9% in the South. New home sales are down 0.5% in the affordability-challenged West. n

Single-family housing starts down in August

Higher mortgage rates averaging above 7% put a damper on single-family production in August, as builders also continue to face supply-side challenges in the form of elevated construction costs, a lack of skilled labor and a shortage of buildable lots.

Led by a sharp decline in multifamily production, overall housing starts fell 11.3% in August to a seasonally adjusted annual rate of 1.28 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The August reading of 1.28 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 4.3% to a 941,000 seasonally adjusted annual rate. Single-family starts are 2.4% higher than a year ago. The multifamily sector, which includes apartment buildings and condos, decreased

26.3% to an annualized 342,000 pace.

“High mortgage rates above 7% combined with low resale inventory and higher home prices are slowing housing production, as many first-time home buyers and younger households are struggling to purchase an affordable home,” said Alicia Huey, NAHB chairman. “With high mortgage rates sending buyers to the sidelines, and a nationwide shortage of 1.5 million units, we need to increase the housing supply to get this market back into balance to meet the pent-up demand for when market conditions improve.”

“Despite higher demand for new construction stemming from a lack of resale inventory, home builders are feeling pessimistic about the housing market because of elevated mortgage rates hovering above 7%,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and

Builders confidence down on rising mortgage rates

Persistently high mortgage rates above 7% continue to erode builder confidence, as sentiment levels have dropped below the key break-even measure of 50 for the first time in five months.

Builder confidence in the market for newly built single-family homes in September fell five points to 45, according to the latest NAHB/ Wells Fargo Housing Market Index (HMI). This follows a six-point drop in August.

“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power,” said NAHB Chairman Alicia Huey. “And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes. Insurance cost and availability is also a growing concern for the housing sector.”

“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-

term rates move lower,” said NAHB Chief Economist Robert Dietz. “Putting into place policies that will allow builders to increase the housing supply is the best remedy to ease the nation’s housing affordability crisis and curb shelter inflation. Shelter inflation posted a 7.3% year-over-year gain in August, compared to an overall 3.7% consumer inflation reading.”

As mortgage rates stayed above 7% over the last month, more builders are reducing home prices again to bolster sales. In September, 32% of builders reported cutting home prices, compared to 25% in August. That’s the largest share of builders cutting prices since December 2022 (35%). The average price discount remains at 6%. Meanwhile, 59% of builders provided sales incentives of all forms in September, more than any month since April 2023.

While more pricing-out is now occurring, the lack of resale inventory at the start of 2023 has shifted the new construction buyer mix. A special question in the September HMI survey revealed that 42% of new

analysis. “Unfortunately, we expect mortgage rates to remain at higher levels as the Federal Reserve is likely to increase rates one more time later this quarter.”

The number of single-family units under construction is down 16.3% compared to a year ago at 676,000. Meanwhile, the number of apartments under construction increased to 1.01 million.

On a regional and year-to-date basis, combined single-family and multifamily starts are 22.8% lower in the Northeast, 13.6% lower in the Midwest, 8.8% lower in the South and 16.5% lower in the West.

Overall permits increased 6.9% to a 1.54 million unit annualized rate in August. Single-family permits increased 2% to a 949,000 unit rate. Single-family permits are also up 7.2% compared to a year ago. Multifamily permits increased 15.8% to an annualized 594,000 pace.

Looking at regional permit data on a yearto-date basis, permits are 22.9% lower in the Northeast, 17.2% lower in the Midwest, 13.3% lower in the South and 18.2% lower in the West. n

single-family home buyers were first-time buyers on a year-to-date basis in 2023. This is significantly higher than the 27% reading from a more normalized market in 2018.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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 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 major HMI indices posted declines in September. The HMI index gauging current sales conditions fell six points to 51, the component charting sales expectations in the next six months also declined six points to 49 and the gauge measuring traffic of prospective buyers dropped five points to 30.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell two points to 54, the Midwest dropped three points to 42, the South fell four points to 54 the West posted a three-point decline to 47. n

Skilled construction labor key in coming years

Financial conditions continue to tighten, as the 10-year Treasury rate increased to above 7.5%. Among the factors leading to higher rates (more debt issuance, higher-for-longer monetary policy expectations, long-term fiscal deficit conditions, and strong current GDP growth forecasts) was a surprise jump in August for the total number of open, unfilled jobs.

In August, the number of open jobs for the economy as a whole increased to 9.6 million, a significant increase over the 8.9 million estimated total for July. NAHB estimates indicate that this number must fall back below 8 million for the Federal Reserve to feel more comfortable about labor market conditions and their corresponding impact on inflation.

While the Fed intends for higher interest rates to have an impact on the demand-side of the economy, the ultimate solution for the labor shortage will not be found by slowing worker demand, but by recruiting, training and retaining skilled workers. This is where the risk of a monetary policy mistake can be found. Good news for the labor market does not automatically imply bad news for inflation.

The construction labor market continued to cool in August. The count of open construction jobs decreased to 350,000. This estimate comes after a data series high of 488,000 in December 2022. The overall trend is one of cooling for open construction sector jobs as the housing market slows and backlog is reduced, with a notable uptick in month-to-month volatility since late last year.

The construction job openings rate held at 4.2% in August. The recent trend of these estimates points to the construction labor market having peaked in 2022 and is now entering a stop-start cooling stage as the housing market adjusts to higher interest rates.

Despite additional weakening that will occur in the second half of 2023, the housing market remains underbuilt and requires additional labor, lots and lumber and

building materials to add inventory. Hiring in the construction sector fell back to 4.4% in August after 4.8% in July. The post-virus peak rate of hiring occurred in May 2020 (10.4%) as a post-covid rebound took hold in home building and remodeling.

Construction sector layoffs fell back to 2% in August after 2.2% in July. In April 2020, the layoff rate was 10.8%. Since that time, the sector layoff rate has been below 3%, with the exception of February 2021 due to weather effects and March 2023 due to some market churn.

Looking forward, attracting skilled labor will remain a key objective for construction firms in the coming years. While a slowing housing market will take some pressure off tight labor markets, the long-term labor challenge will persist beyond the ongoing macro slowdown n

Twenty-one 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 August 31, 2023.

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.

Next meeting: to be announced.

Topic: to be announced.

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, October 5th at the HBAMT.

Topic: “Housing Market Update & Forecast,” with Shaun McCutcheon, VP of Advisory at Zonda

SMC Members Free w/RSVP thanks to our sponsors from Carbine & Associates!

Non-SMC members: $15 with RSVP; $20 w/o RSVP

THIS MEETING HAS SOLD OUT!

RSVP to: cnicley@hbamt.org