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Homeowners’ confidence is falling for the first time in four months

Workers install roofing on an apartment complex under construction in Lehi, Utah, Friday, January 7, 2022.

George Frey | Bloomberg | Getty Images

Builders in the market for single-family homes are facing rising costs, which leads to a turnaround in the mood to start the year.

Builders' confidence fell one point to 83 in January, according to the National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index (HMI). Anything over 50 is considered positive, but it is the first drop in four months. The index also stood at 83 in January 2021.

"Higher material costs and lack of availability add weeks to typical single-family construction times," said NAHB President Chuck Fowke, a homebuilder from Tampa, Florida. "NAHB analysis indicates that the total cost of building materials for housing has increased by almost 19% since December 2020."

The price of softwood alone has risen by about 85% in just the last three months, according to Random Lengths. Timber prices rose last spring and then fell dramatically over the summer. They are up again now after the US doubled tariffs on Canadian timber and western forest fires disrupted timber production.

The prices of other materials, such as plaster and steel, are also higher. And the continuing shortage of labor has also pushed up costs.

Of the three components of the index, current sales conditions were unchanged at 90. Sales expectations over the next six months fell 2 points to 83, and buyer traffic fell 2 points to 69.

Builders are also facing much higher mortgage rates in the new year, but the HMI data was collected early in the month and does not fully reflect that jump. The average interest rate on the 30-year fixed rate is now about 50 basis points higher than a month ago and 75 basis points higher than a year ago.

"While lean existing housing stock and solid buyer demand support the need for new construction, the combination of ongoing increases in building materials, worsening shortages of skilled labor and higher mortgage rates point to declines in housing affordability in 2022," says Robert Dietz, NAHB's. chief economist.

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