Builder Confidence Holds Steady in Face of Rising Costs

The National Association of Home Builders (NAHB) said new home builders are not losing faith in the market for new homes despite their growing concerns over the price and availability of lumber and other building materials. The NAHB/Wells Fargo Housing Market Index, a measure of builder confidence, was at 83 in May, the same level as in April.

"Low interest rates are supporting housing affordability in a market where the cost of most materials is rising," said NAHB Chief Economist Robert Dietz. "In recent months, aggregate residential construction material costs were up 12 percent year-over-year, and our surveys suggest those costs are rising further. Some builders are slowing sales to manage their own supply-chains, which means growing affordability challenges for a market in critical need of more inventory."

With labor and lot availability a challenge in many markets, Dietz cautioned that "home buyers should expect rising prices throughout 2021 as the cost of materials, land and labor continue to rise."

Derived from a monthly survey that NAHB has been conducting for 35 years, the HMI gauges builder 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.

The HMI index gauging current sales conditions held steady at 88, and the gauge charting sales expectations in the next six months rose 1 point to 81. The component measuring traffic of prospective buyers fell 1 point to 73.

Looking at the three-month moving averages for regional HMI scores, the South rose 1 point to 84 and the West held steady at 90. The Northeast fell 4 points to 82 and the Midwest posted a 3-point drop to 75.

"Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates and a growing demographic of prospective home buyers," according to NAHB Chairman Chuck Fowke. "However, first-time and first-generation home buyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability. Policymakers must take note and find ways to increase production of domestic building materials, including lumber and steel, and suspend tariffs on imports of construction materials."