What do you want to know
- US homebuilder sentiment declines as building materials and land costs rise
- The NAHB/Wells Fargo housing market index fell in December and January after a record high in November.
- Inventory of single-family homes fell to 389,000, according to Altos Research
US housing starts rose much more than expected in December to an annual rate of 1.669 million. It is now at its highest since the financial crisis of 2007-2008. However, recent surveys of homebuilders and surveyors suggest that supply constraints are weighing on the outlook for the housing market this year.
Material costs are up, inventory is down
The cost of building materials for residential construction (excluding energy) in the United States rose 5.4% in 2020 as the housing market warmed and lumber prices hit historic highs during the pandemic .
The continued rise in material and land prices is weighing on homebuilder confidence as it impacts inventory and affordability. The monthly NAHB/Wells Fargo Housing Market Index (HMI) the reading fell three points to 83 in January from 86 in December. The survey gauges builders’ sentiment on current and near-term conditions in the single-family home market. It still remains high after hitting a record high of 90 in November.
“While housing continues to help drive the economy forward, tight inventories limit more robust growth,” said NAHB chief economist Robert Dietz. “A shortage of building land is making it difficult to meet strong demand, and rising material prices are far outpacing rising house prices, hurting housing affordability.”
Builders are also reporting labor shortages, which is delaying delivery times and putting upward pressure on home prices. Home prices in the United States rose at the fastest pace in more than six years in October 2020, according to the S&P CoreLogic Case-Shiller 20-city home price index. “Despite strong housing demand and low mortgage rates, buyers are facing a shortage of new homes on the market, exacerbating affordability issues,” Dietz said.
There are only 389,000 single-family homes on the market, according to Altos Research, which added that “many new listings are receiving offers so quickly that they bypass our active market data and go straight to the pending contract.” This figure is down from nearly 740,000 at the same time last year.
The hottest housing markets in 2021
A Zillow Survey of Experts says the hottest housing market this year will be the new tech hub in Austin, Texas. According to the Online Real Estate Market, an overwhelming 84% of respondents said Austin values would outperform the national average, compared to just 9% who think they would fare worse. Pageviews of Zillow listings for sale in Austin by out-of-town searchers increased 87% in November compared to 2019.
Phoenix was the second most likely to outperform the nation in home value growth at 69%, followed by Nashville (67%), Tampa (60%) and Denver (56%). The expensive coastal markets of New York, San Francisco and Los Angeles are the most likely to underperform, although Zillow expects growth in all markets.
Notably, 29% of panelists cited tight supply conditions and affordability issues as the biggest potential headwinds for the U.S. housing market this year.
The hot housing market has been a boon for housing inventory over the past six months. Toll Brothers, KB Homes and The Pulte Group all outperformed the S&P 500 as low interest rates and a migration out of some major cities boosted demand.