Confidence among homebuilders in December slipped further away from a decade high, a sign progress in the housing industry may moderate as developers fret over rising costs for lots and labor.
The National Association of Home Builders/Wells Fargo sentiment gauge
Momentum in the housing market has cooled after strong gains earlier in the year as limited wage growth has bridled how fast the industry can improve. With the U.S. central bank considering raising its benchmark interest rate as soon as this week, consumers and builders may hold off on investments until the impact of higher borrowing costs becomes clearer.
"Housing had a very strong start to the year, but the momentum has softened a bit in recent months," Thomas Costerg, senior U.S. economist at Standard Chartered Bank in New York, said before the report. "The low-hanging fruit are probably gone."
The median forecast in a Bloomberg survey of 48 economists projected the index would increase to 63. Estimates ranged from 60 to 68.
Confidence eased in three of the four U.S. regions, with builders in the Midwest showing the greatest decline to 55 from 60. Sentiment also fell in Northeast and West, and was unchanged in the South.
The prospective buyer traffic gauge dropped to 46 from 48 last month, while the current single-family home sales index decreased to 66 from 67.
The six-month sales outlook measure fell to 67 in December from 69.
The confidence index is "in line with a gradual, consistent recovery," David Crowe, NAHB chief economist, said in a statement. "With job creation, economic growth and growing household formations, we anticipate the housing market to continue to pick up traction as we head into 2016."
Tom Woods, a builder in Blue Springs, Mo., and the group's chairman, said in the statement that members, while remaining optimistic, were growing increasingly concerned about the cost of doing business.
Housing has become a more affordable option for some Americans as an improving labor market gives them the steady employment and income stream needed to make a monthly mortgage payment. Employers have added 2.3 million workers to payrolls this year, while joblessness is at a seven-year low.
Stronger wage growth will be needed to help take the housing recovery a step further. Stagnant earnings may make it more difficult for consumers to save up money for a down payment, consigning them to renting instead.
The Federal Reserve is keeping these factors in mind as it contemplates raising interest rates at its meeting in Washington this week. A majority of investors and economists are projecting the central bank will lift rates by a quarter percentage point from near zero.
While Fed officials have stressed that rate increases would progress gradually, "one of the key risks to the outlook for the housing market in 2016 is related to the Fed’s exit from the zero interest rate policy," Michelle Meyer, deputy head of U.S. economics at Bank of America Corp., wrote in a Dec. 14 note to clients. "There is a risk of an adverse market reaction and/or disorderly increase in interest rates."
Low borrowing costs have helped underpin the housing recovery over the past few years. The average 30-year, fixed-rate mortgage was 3.95% in the week ended Dec. 10, compared to an average of 6.15% in the previous expansion.
