There’s a housing inventory shortage, but builders are in a happy mood

Homebuilders are an optimistic bunch. They normally purchase land or finished lots, spend thousands on lumber and myriad other materials, and start putting up houses — often before the first customer walks in the door.

That’s not the case now, though, and hasn’t been for months. Because of the shortage of existing homes for sale, builders are selling everything before they even put a shovel in the ground.

According to market research firm Zonda, builders with available inventory are generally still selling well. In November, sales hit a seasonally adjusted annual rate of 744,000: a 12% gain from 662,000 in October.

Perhaps that’s why builders are so upbeat right now. Even faced with a number of “stubbornly persistent” problems, the “builder sentiment index,” as calculated by their trade association, actually moved higher in November.

After all but closing down this fall after running out of product, some builders — but not all — are starting to reopen their operations, according to John Burns Real Estate Consulting. In a recent survey, a Dallas builder told the firm they have a “huge number of communities coming online” soon. In Naples, Florida, a builder who had been sold out is taking reservations again; ditto for a builder in Chicago. In the D.C. area, another builder is no longer operating with sales caps.

Meanwhile, housing starts reached a 1.68 million annual rate in November, the most houses under construction in a single month since 1974. Yet a record 152,000 houses have been permitted but not yet started — that’s more than double the normal level. Builders are probably waiting to start some houses until they have a firmer grasp on prices, housing blogger Bill McBride suspects.

All this is taking place against a backdrop of supply chain issues, a dearth of building lots and a labor shortage. Any buyers venturing into today’s new home market should expect their houses to take longer to build and contain more cosmetic defects than usual.

Oh, yeah — and higher prices. Prices jumped anywhere from 17% to 19% in the 12-month period ending on Oct. 31, depending on whose report you read.

The lack of building sites and workers has been covered in this column and elsewhere for months. But to bring the situation up to date, lot availability is at a multidecade low, reports Robert Dietz, the National Association of Home Builders’ chief economist. And the construction business has more than 410,000 open positions.

In its latest survey, 76% of its members said the supply of available lots was either low or very low — an all-time record “by a wide margin” since the NAHB started collecting this data in the 1990s.

The NAHB also reports that more than half its builder-members