A house under construction can be seen on November 21, 2020 in Culver City, a neighborhood of Los Angeles.
Chris Delmas | AFP | Getty Images
After three months of record highs in a row, builders’ confidence in the single-family home market waned in December.
Builders are concerned that buyers will experience a sticker shock.
According to the latest NAHB / Wells Fargo Housing Market Index, sentiment fell 4 points to 86 points in December. This is now the second highest value in the history of the 1985 index. Anything over 50 is considered positive. Last December, the index was 76.
“Housing demand will be strong starting in 2021, but housing affordability will change in the coming year as inventory levels stay low and construction costs rise,” said Chuck Fowke, chairman of NAHB, a Tampa, Florida-based contractor.
Of the three components of the index, the current sales conditions fell by 4 points to 92. Sales expectations fell by 4 points to 85 over the next six months. Buyer traffic also fell by 4 points to 73.
Real estate prices for existing and new houses are rising. Property prices have risen due to high demand and low supply. The prices for new houses are under additional pressure due to rising costs for building owners.
“The problems that have limited the supply of housing in recent years, including the availability of land and material and a continuing shortage of skilled workers, will continue to put construction costs under pressure,” said NAHB chief economist Robert Dietz. “As the economy improves with the use of a Covid-19 vaccine, interest rates will rise in 2021, further questioning the affordability of housing given the strong demand for single-family homes.”
The average interest rate on the popular 30-year fixed-rate mortgage fell to another record low last week, the 15th record low so far this year, according to the Mortgage Bankers Association. Low prices have given buyers more purchasing power, but they have also added fuel to the fire below home prices. With so many buyers struggling to afford a home now, increasing prices could hurt sales significantly.
If you look at the moving three-month averages, the sentiment of building owners in the northeast fell by 1 point to 82. In the Midwest, it rose by 1 point to 81. In the south, it rose by 1 point to 87 and in the west by 2 points to 96.