Builder Confidence Retreats Once Again

Rising concerns about costs and labor shortages continue to take a toll on home builder sentiment according to the August Housing Market Index (HMI). The Index, a joint product of the National Association of Home Builders (NAHB) and Wells Fargo, dipped another point to 67.

The HMI has been moving in a narrow range between 68 and 70 since March. The index scored an 18 year high in of 74 last December and has trended lower since. The August number is the lowest so far this year.

The index is a distillation of information gathered through a monthly survey that NAHB has been conducting for 30 years. New home builder members of the association are asked to provide their , perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three components moved lower in August. The measure of current sales conditions moved down 1 point to 73 and the gauge of expectations over the next six months also ticked down, moving from 73 to 72. Builder perceptions of buyer traffic, which consistently lags the other two components, dropped 2 points to 49.

NAHB Chairman Randy Noel said, "The good news is that builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations.  However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots."

"The solid economic expansion and firm job market should spur demand for new single-family homes in the months ahead," said NAHB Chief Economist Robert Dietz. "Meanwhile, builders continue to monitor how tariffs and the growing threat of a trade war are affecting key building material prices, including lumber. These cost increases, coupled with rising interest rates, are putting upward pressure on home prices and contributing to growing affordability challenges, as indicated by the latest quarterly reading of the NAHB/Wells Fargo Housing Opportunity Index."

The regional results are reported as moving averages and, while the South and West each held steady at 70 and 75, respectively both the Northeast and the Midwest lost 3 points. The Northeast is now at 54 and the Midwest at 62.