Homebuilder Confidence Begins to Wane

Blueprint of a typical two-story house

According to a report from the National Association of Home Builders (NAHB), Washington, D.C., builder confidence, while still strong, is down from a record high in November.

“Ending a string of three successive months of record highs, builder confidence in the market for newly built single-family homes fell four points to 86 in December,” stated the NAHB/Wells Fargo Housing Market Index (HMI). “Despite the decline, this is still the second-highest reading in the history of the series after last month’s 90.”

Derived from a monthly survey that NAHB has been conducting for 35 years, the 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 on 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 over those that think it is poor.

According to Chuck Fowke, chairman of NAHB and a custom home builder from Tampa, Fla., housing demand is strong entering 2021. “However, the coming year will see housing affordability challenges as inventory remains low and construction costs are rising. Policymakers should take note to avoid increasing regulatory costs associated with land development and residential construction,” he said.

“The issues that have limited housing supply in recent years, including land and material availability and a persistent skilled labor shortage, will continue to place upward pressure on construction costs,” said Robert Dietz, NAHB’s chief economist and senior vice president for economics and housing policy. “As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes.”

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