Lumber Prices and Rising Rates Take a Toll on Builder Confidence

Escalating costs took a toll on builder confidence this month. The National Association of Home Builders (NAHB) said its Housing Market Index dipped two points from its February level. At 82 it is down 8 points from the all-time high it established last November.

NAHB's chief economist Robert Dietz said, while there is still a high volume of buyer traffic and strong consumer demand, rising lumber prices, especially for softwood lumber and other material costs as well as delivery delays, have pushed builder confidence lower. Lumber prices are up by about 200 percent since April, driven by shortages and high demand. This his added about $24,000 to the price of a new home at a time when interest rates are also rising.

Derived from a monthly survey that NAHB has been conducting for 35 years, the HMI, which is cosponsored by Wells Fargo, asks builders for their perceptions of current single-family home sales and as well as their expectations for sales over the next six months as "good," "fair" or "poor." They are also asked to rate buyer traffic 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.

The HMI index gauging current sales conditions fell three points to 87 while the component measuring sales expectations in the next six months increased three points to 83. The gauge charting traffic of prospective buyers was unchanged from February at 72.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose two points to 80, the Midwest fell one point to 80, the South dropped two points to 82 and the West posted a three-point loss to 90.