Photo: Robert Clark
Rising home prices have left many US homebuyers and homebuilders deflated, according to a new report by the National Association of Home Builders (NAHB).
As prices and interest rates continue to rise, some buyers are choosing to put their purchasing plans on hold — and homebuilders are taking notice.
“The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market,” said Robert Dietz, NAHB chief economist, in a statement.
Builder confidence in the market for newly built single-family homes fell four points to a reading of 56 in December on the Housing Market Index (HMI). Previously, the HMI had fallen 8 points to a reading of 60 in November.
Although this is the lowest HMI reading recorded since May 2015, builder sentiment remains in positive territory — for now, at least.
The NAHB HMI is derived from a monthly survey that gauges builder perceptions of current and future single-family home sales, as well as buyer foot traffic as “good,” “fair” or “poor.” 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 than poor.
All components that make up the HMI posted declines in December.
The index that measures current sales conditions fell six points to a reading of 61 and the component that gauges future sales expectations dropped four points to 61.
Reflecting eroding affordability and waning demand, the buyer traffic component edged down two points to 43 — indicating “poor” conditions persist.
“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” said Randy Noel, NAHB Chairman, in a statement.
The slip in buyer demand could also prove to be a harbinger of what’s in store for the US economy in 2019.
“This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points,” says Dietz.
Still, the biggest challenge facing homebuilders isn’t rising prices or interest rates, but the shortage of skilled labor, says Dietz.
“The skilled labor shortage is having the greatest impact on the slow growth rate of the industry. Housing could grow exponentially faster if there was more labor available,” Dietz tells Livabl.
Despite the housing industry adding between 80,000 and 100,000 new workers over the last year, over 270,000 jobs are still unfilled — a post-recession high. The number of unfilled positions has remained above peak levels for the last two years.
The stark reality is that without more homes available on the for-sale market, competition and prices are likely to remain high through the end of 2019 — and beyond.