After reporting homebuilder confidence at a record high in the previous month, the National Association of Home Builders released a report on Wednesday showing confidence pulled back by more than expected in the month of December.
The report said the NAHB Housing Market Index slid to 86 in December after climbing to 90 in November. Economists had expected the index to dip to 88.
Despite the pullback, the NAHB noted the housing market index was still at the second-highest reading in the history of the series.
“Housing demand is strong entering 2021, however the coming year will see housing affordability challenges as inventory remains low and construction costs are rising,” said NAHB Chairman Chuck Fowke.
He added, “Policymakers should take note to avoid increasing regulatory costs associated with land development and residential construction.”
The bigger than expected decrease by the housing market index reflected decreases by all three of the component indices.
The 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.
NAHB Chief Economist Robert Dietz noted housing remains a bright spot for a recovering economy even as homebuilder confidence fell from historic levels.
“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,” Dietz said.
He added, “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.”
On Thursday, the Commerce Department is scheduled to release a separate report on new residential construction in the month of November.
Housing starts are expected to rise to an annual rate of 1.550 million in November from 1.530 million in October, while building permits are expected to inch up to 1.550 million from 1.545 million.