The National Association of Home Builders (NAHB) and Wells Fargo Bank partnered up for their monthly Housing Market Index (HMI) and found the December 2018 score to be 56 points. Down significantly from a score of 60 points in November 2018, 56 is the lowest point score for the HMI since May 2015.
According to Robert Dietz, chief economist with the NAHB, this slip in homebuilders’ confidence is all about affordability concerns. “The fact that builder confidence dropped…in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market. This housing slowdown is an early indicator of overall economic softening and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.”
To drive affordability concerns home, it is important to remember that the HMI has plummeted 20 points over this past year.
Focusing specifically on the three components the Index measures:
- current sales conditions fell 6 points to 61
- sales expectations in the next 6 months dropped 4 points to 61
- buyer traffic fell 2 points to 43.
Different parts of the country produced four different HMI results:
- the Midwest dropped 2 points to 55
- the West dropped 3 points to 68
- the South dropped 3 points to 65
- the Northeast dropped 8 points to 50.
Despite HIGH demand for entry-level homes, builders have been building move-up and luxury homes due to in increasingly high costs of land, labor and materials.
According to BuildZoom’s economist, Issi Romem, in his newly released report, “What’s Up with Construction Costs?” labor costs, not materials, are driving accelerating construction costs in the country’s most expensive metros. (This is not the case in less expensive markets where worker shortages are not as severe.) Since 2008, labor costs have appreciated in New York City by +31.3%, higher than the mean of the 30 most expensive cities. San Francisco’s labor costs have appreciated +25.6% and in Chicago, labor costs have appreciated +16.8% on top of the mean.
Factor in local regulations that restrict land usage, land costs, and, now, the threat of further trade wars and no wonder builder confidence is falling. Romem said, “The uncertainty is as important as the tariffs themselves. It could be a lot more serious in the future.”