Material Challenges Dampen Home Builder Sentiment

In the first of three reports this week on new home building, the National Association of Home Builders said rising material prices and supply chain shortages resulted in builder confidence dipping to its lowest level since August 2020.

The NAHB/Wells Fargo Housing Market Index reported builder confidence in the market for newly built single-family homes fell two points to 81 in June. All three major HMI indices posted declines in June: The HMI index gauging current sales conditions fell two points to 86; the gauge charting sales expectations in the next six months posted a two-point decline to 79; and the component measuring traffic of prospective buyers dropped two points to 71.

Regionally, the South rose one point to 85, the West fell one point to 89, the Midwest dropped three points to 72 and the Northeast posted a five-point decline to 78.

Despite the monthly decline, NAHB said the reading above 80 is still a signal of strong demand in a housing market lacking inventory. But NAHB Chief Economist Robert Dietz and NAHB Chairman Chuck Fowke said supply constraints could further dampen home builder sentiment in coming months.

“These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building,” Fowke said.

“While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” Dietz said.

Any number over 50 indicates that more builders view conditions as good than poor.

On Wednesday, HUD and the Census Bureau release the monthly New Residential Construction report for May, which measures housing starts, housing permits and housing completions. And on Thursday, the Mortgage Bankers Association releases its monthly Builder Applications Survey. MBA Associate Vice President for Economic and Industry Forecasting Joel Kan will provide commentary.