Rising mortgage loan rates and changes to homeowner tax deductions are reducing consumers' homebuying power, sending down new home sales.
New home sales declined in December 2017 and in January 2018, and are now at the lowest level since August 2017. Despite slower buyer traffic in January, builder confidence remains high due to sales expectations in the coming months, CNBC reports. "This report is undoubtedly disappointing. Like 2017, 2018 isn't setting up to be particularly favorable for builders — construction materials and permitting costs are high and rising, labor is tight, and desirable, buildable land is scarce and expensive," wrote Aaron Terrazas, senior economist at Zillow.
The median price of a newly built home rose to $323,000, a 2.5 percent gain compared with January 2017. Builders are not only increasing prices, but they are also mostly focused on the move-up market, not the entry level where homes are needed most. While there is a severe shortage of existing homes for sale, the opposite appears to be the case in the new home market. Supply rose to the highest level in four years, another sign that new construction is increasingly out of financial reach for today's homebuyers.
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