Builder Confidence Holds Steady, Labor Shortages Persist

Builder confidence rose slightly in July. The National Association of Home Builders (NAHB) said its Housing Market Index (HMI), which it sponsors with Wells Fargo, gained one point, rising to 65.  This marks the sixth consecutive month that sentiment levels have held at a steady range in the low- to mid-60s.

NAHB Chair Greg Ugalde said, "Builders report solid demand for single-family homes. However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes,"

The HMI derives from a survey that NAHB has conducted among its new home builder members for over 30 years. In that survey builders are asked to give 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 of the component indices improved in July. The measures of both current and future sales conditions rose 1 point to 71 and 72 respectively. The index measuring buyer traffic remains stuck below the 50 benchmark, up 1 point to 48.  

"Even as builders try to rein in costs, home prices continue to outpace incomes," said NAHB Chief Economist Robert Dietz. "The current low mortgage interest rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new home purchases in large metro suburban markets, where approximately one-third of new construction takes place."

Regional scores are expressed as three-month moving averages. The South moved one point higher to 68 and the West was also up one point to 72. The Northeast remained unchanged at 60 while the Midwest fell a single point to 56.