2018 was a concerning time for home builders and the industry that supports them. Both November and December revealed a sharp decline in new home builds, but the market has now turned a corner with the start of the new year. January has so far reversed the decline, and new home builds are likely to increase by two percent before the end of the month.
This has the industry confident, and it indicates that there’s still a lot of life in what was becoming a stagnant market.
Headwinds Still Prevail in Home Market
While confidence has increased, industry insiders are still wary of market headwinds.
The Federal Reserve’s commitment to slow its hikes could help to create more stability in 2019. The average 30-year fixed mortgage rate in 2018 was 4.54%. For the first weeks of this year, it has averaged 4.48%. This, of course, could change at any time.
Both new homes and previously-owned homes are still too pricy for much of the market, particularly first-time buyers. The National Association of Home Builders has acknowledged this fact and has said that “Builders need to continue to manage rising construction costs to keep home prices affordable, particularly for young buyers at the entry-level of the market.” The Association also noted that “The slowdown in sales during the fourth quarter of 2018 has left new home inventories elevated in some markets.”
Can Current Home Builders Confidence be Sustained?
High inventory means that buyers have more choice and more leverage when negotiating. Prices could potentially fall as sellers will be eager to close sales in case interest rates pick up again.
While 30-year fixed mortgage rates are down compared to 2018, they could easily trend upwards. It’s important to keep in mind that the data for this year barely covers three weeks.
Home builders may be more confident, but the key is to get buyers on the same page. Early figures suggest that interest is picking up, with mortgage applications swelling by 20% in the last week as rates started to fall. Supply-demand imbalance is the major risk today. High inventories cannot be sustained. Without prolonged buyer confidence, those inventories will become liabilities. Weeks or even months of data is still needed to determine the true health of the home market in 2019.
The good news for buyers is that mortgages just became slightly more affordable, making January a compelling time to buy.
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