Builders see home buyer hesitancy posing high hurdles in 2023

While interest rates and inflation top the list of problems facing homebuilders, a much larger share of them also see attracting buyers emerging as a significant challenge in 2023 compared to past years.

More than half of single-family builders surveyed in January said bringing buyers to the table would prove troublesome this year due in part to difficulty selling currently occupied properties and unfavorable media reports, according to the National Association of Home Builders. Pessimism about purchase trends saw a marked change from 2022 sentiment when a far smaller share of the industry perceived consumer hesitancy as problematic. 

"Compared to the supply-side problems of materials and labor, problems attracting buyers have not been as widespread, but builders expect many of them to become more of a problem in 2023," wrote Ashok Chaluvadi, senior economist at NAHB. Data was collected in surveys for the NAHB/Wells Fargo Housing Market Index last month.  

Approximately 80% of builders anticipate that hesitant buyers, who are holding back in expectation of lower mortgage rates and prices, will impact their business in 2023 compared to 49% who said it was an issue in 2022. The influence of media coverage potentially disincentivizing buyers was also seen as a factor by 79%, jumping from 55% with similar views in 2022.

Builders also displayed a change in sentiment regarding the potential negative effects of U.S. economic and employment developments on the buying public. A 73% share called it a concern this year, rising from 41% in 2022. A sluggish housing market, resulting in homeowners unable to sell existing housing, surged as a homebuilding problem for 52%, compared to just 13% last year.

While difficulty in attracting consumers brings increased headaches for builders, inflation and interest rates ranked highest on the list of likely expected business issues, NAHB found. Ninety-three percent of the industry thinks high interest rates will prove to be a formidable obstacle for companies' bottom lines this year, compared to 66% citing them in 2022.  

Inflationary pressure will continue to plague the industry as well, with 83% considering it a complicating factor. The percentage, though, inched downward from 85% in 2022. 

Cost and availability of labor is seen as challenging by 73% of homebuilders, but the share fell from 85% last year. January employment data points to improvement in worker numbers, according to some housing industry economists.

"We note that residential construction employment (including specialty trade contractors) grew by 5,500 in January, though we believe more employment growth will be needed here to help homebuilders fulfill their existing orders," Fannie Mae Chief Economist Doug Duncan recently said. 

Other issues deemed as troubling last year also appeared to abate in the eyes of builders as 2023 began.

While supply and material costs led the list of 2022's worries, cited by 96% of the industry, only 62% mentioned them as similarly problematic this year. Supply chain slowdowns, which were prevalent at the height of the COVID-19 pandemic, also has become less of a 2023 concern. Only 50% said availability and the time it took building supplies to arrive present an issue in coming months, compared to 86% last year.