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Builder confidence has been declining since January
Homebuilder confidence in the market has been declining since January, driven by the high costs of building materials and low supply. In
August, the builder’s confidence level fell to an all-time low in thirteen months, dropping by five points to 75. Experts had expected the reading to remain the same, but in August, it showed that the builder’s confidence had worsened.
The United States NAHB, a body in charge of the marketing index, revealed that the 75 reading recorded in August was the lowest since July the year prior when it read 80. According to NAHB, a reading above 50 signifies that homebuilders see the market as favorable instead of poor. However, the five points decline only means that more builders have a different view of the current market conditions.
Spike In Building Materials Prices Responsible for the Surging Home Prices The surging home prices across California and other states in the U.S. result from the high cost of lumber and other building materials. Consequently, this led to a low housing supply. Due to the high construction costs and limited supply, only a few prospective buyers believe this is the perfect time to acquire a home.
Two months before January 2021, builders were optimistic that buyer demand would skyrocket, driven by the desire to get larger homes in the suburbs due to Covid-19. However, their hopes were dashed when the prices of construction materials became expensive. In November, builder confidence hit a record high of 90. However, two months later, it had fallen to 83 from 86 in December. That has been the range until 75 in August.
NAHB Chairman said that while the low mortgage rates and demographics are enticing, higher building materials and supply costs have resulted in an unsurprisingly low level of home construction and even homebuying. However, NAHB’s survey for single-family homes for the next six months predicts that the market index will hold steady at 81, higher than the current 75, and could be the highest over a year. Meanwhile, the prospective buyer’s index has fallen to 60.
In January, the sales conditions dropped to 90 from 92. In addition, NAHB predicted sales activities could drop to 83 within the next six months, while the buyer index would fall
to 68. Unfortunately, those figures are way above the current indexes, indicating the worsening market situation.
COVID-19 A MAJOR PLAYER IN THE WORSENING MARKET INDEXES
Although the huge importation tax placed on lumber importation may have played a part in the cost of lumber prices and other building materials, the Coronavirus aggravated the situation. The emergence of the virus in the United States caused the housing market and hospitality industry huge losses. According to United States Economist Oren Klachkin, the Covid situation will likely continue until autumn.
Although lumber prices have slightly declined, the costs of other building materials are still expensive. Plus, there’s limited space for home construction due to the zoning laws and lack of labor that elongate the delivery time of the building materials. When these are added together, it’s expected that home prices will continue to surge. Now, the Delta variant is in full force, consequently reducing buyer traffic, especially in the South and Midwest.
The housing market is a significant driver of its economy, but limited inventory will constrain its solid growth. In addition, the lack of buildable lands will make it challenging to meet the rising demand, consequently hampering affordable housing. While Covid is still prevalent, some options can mitigate the high costs of houses. For instance, the zoning laws across all states will be adjusted to suit the current economic reality. This will give homebuilders more land to build, consequently arresting housing shortage and costs of housing.
Recently, California legislators advanced the second zoning bill in Congress to aid in the building of additional housing units on lots allocated to single-family properties. Other states can make similar moves to push for affordable housing across the country.
Housing affordability is becoming almost nonexistent in the U.S real estate market. This has driven many people into becoming renters. However, you can still get an affordable home in a perfect location with the help of our realtors. Contact Eric L. Frazier for assistance with purchasing a home or investment property. Eric L. Frazier MBA is a licensed Mortgage Advisor NMLS 461807 with First Bank and can be reached at 800261-1634 ext. 703.
ABOUT THE POWER IS NOW MEDIA, INC.
The Power Is Now Media is an online multimedia company founded in 2009 by Eric L. Frazier, MBA, headquartered in Riverside, California. We advocate for homeownership, wealth building, and financial literacy for low to moderateincome and minority communities. The Power Is Now Media corporate office is located at 3739 6th Street Riverside, CA 92501. Ph: 800-401-8994 Website: www. thepowerisnow.com.
Eric Lawrence Frazier, MBA. President and Founder, The Power Is Now Media
References
https://www.reuters.com/world/us/us-homebuilder-confidence-falls-13-month-lowaugust-2021-08-17/ https://www.cnbc.com/amp/2021/01/20/spike-in-lumber-and-land-prices-causeshomebuilder-confidence-to-fall.html
