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  • Writer's pictureMerlo Construction

Home construction is slowing but Michigan’s backlog is keeping builders busy

Michigan homebuilders are bucking a national trend as their schedules remain booked solid despite the construction industry claiming a “housing recession.”

Builders are still playing catch-up, said Jimmy Greene, CEO and President of ABC Michigan, the statewide trade association representing the commercial and industrial construction industries.

“It’s a boom still,” he said. “Until we come up on meeting at least 50% or 60% of that backlog, I think Michigan’s a little bit more isolated than the national averages convey.”

Builder confidence fell for the eighth straight month in August, according to The National Association of Home Builders/Wells Fargo Housing Market Index. The home builders survey has been distributed monthly for 35 years.

The steep drop of six points landed builder sentiment at its lowest point since May 2020.

Low confidence is coming from builders seeing buyer traffic slow dramatically, to its lowest level since April 2014, excluding the spring of 2020 when the pandemic first hit, according to the August report. The association pointed to increasing mortgage rates and construction costs as the reason buyers were sitting on the sidelines.

These factors deemed the industry to be in a “housing recession,” said home builders association Chief Economist Robert Dietz.

While Michigan builders remain wary of national trends, they are not seeing the cancellation rates happening in the other parts of the U.S., particularly the southwest and northwest region.

National data showed homebuilder cancellation rates this summer more than doubled since April, according to surveys by John Burns Real Estate Consulting. In July, 17.6% of builder contracts collapsed, compared with 8% in April and 7.5% in July 2021.

Michigan isn’t completely immune to what is causing homebuyers to pull out of these deals, though.

Supply chain issues and inflationary costs are still weighing on Michigan builders, especially fuel costs, Greene said.

“Our builders probably spend more time apologizing than they do building because they apologize for passing these costs on to consumers,” he said.

Roughly one-in-five home builders reported reducing prices in the past month to increase sales or limit cancellations, according to the home builders association/Wells Fargo Housing Market Index survey.

The national home builders association's economic forecast expects inflationary costs to peak and long-term interest rates will stabilize therefore normalizing some of the cost of homebuying.

Michigan’s backlog could cushion the blow of economic turbulence and keep builders busy, said Bob Filka, CEO of the Home Builders Association of Michigan.

Michigan has a backlog on housing production dating back to the 2008 recession. To keep up with demand, the state should be building somewhere around 27,000 homes annually but the actual number sits around 10,000, Filka said.

Single-family home build permits did see a 13% year-over-year dip from January to May, but the Michigan home builders association forecast remains positive for the year overall with the projection that permits will rise and exceed 2021 totals.

“We’re in a rough period here for the next several months,” Filka said. “I think starting next year, you’re going to see some of the supply chain issues resolve themselves and home production will be able to happen in a more normal way.”

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