The worsening supply chain crisis and ongoing labor shortages are compromising construction timelines. However, increasing demand for new homes is causing builder confidence to rise regardless.
Current builder confidence is based on the following three demand-side indicators: current sales conditions, expected sales conditions over the next six months and buyer traffic. As of right now, demand would only fall if the supply crisis worsened significantly, causing prices to skyrocket.
In light of these overall favourable conditions, many developers are itching to start building. However, there is currently a significant backlog of houses that have received permits but are not yet under construction. In fact, the number of houses which are currently under construction but are not yet finished hit its peak level in September since 1974.
Moreover, prices have increased significantly since the start of the year for a wide variety of products, including construction and manufacturing materials. This has severely increased the per-unit cost of all kinds of construction projects, which is consistent with the increasingly inflationary environment we are experiencing. The Federal Reserve is expected to start purchasing less Treasury bonds and mortgage debt soon, to alleviate its effects.