At 86, the builders’ index remains in solid territory since scores over 50 show optimism. But supply costs, limited land and lack of skilled workers has taken a toll.

WASHINGTON – Builders’ confidence levels fell a bit in December, ending a string of three successive record-high months. Confidence in the market for newly built single-family homes fell four points to 86 this month, according to the latest NAHB/Wells Fargo Housing Market Index (HMI).

Despite the decline, however, it’s still the second-highest reading in the history of the series after peaking at 90 last month.

“Housing demand is strong entering 2021, however the coming year will see housing affordability challenges as inventory remains low and construction costs are rising,” says NAHB Chairman Chuck Fowke, a custom home builder from Tampa.

“Builder confidence fell back from historic levels in December, as housing remains a bright spot for a recovering economy,” adds NAHB Chief Economist Robert Dietz. “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. 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.”

The HMI index gauging current sales conditions dropped four points to 92, the component measuring sales expectations in the next six months fell four points to 85 and the gauge charting traffic of prospective buyers also decreased four points to 73.

Looking at three-month moving averages for regional HMI scores, the Northeast fell one point to 82, the Midwest was up one point to 81, the South rose one point to 87 and the West increased two points to 96.

Derived from a monthly survey that NAHB has conducted for 35 years, the NAHB/Wells Fargo Housing Market Index 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 of prospective buyers as “high to very high,” “average” or “low to very low.” Any number over 50 indicates that more builders view conditions as good than poor.

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Author: marlam