Homebuilder Confidence Slips on Rising Material Costs

Concerns grow dues to higher prices

House under construction

Builder confidence fell to its lowest level since late last year as the construction industry cited major concerns about rising material prices.

Builder confidence in the market for newly-built single-family homes fell two points in July to 64 from the downwardly revised June reading, according to the National Association of Builders and Wells Fargo Housing Market Index. This represents the lowest reading since November 2016.

“Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber,” NAHB Chairman Granger MacDonald said. “This is hurting housing affordability even as consumer interest in the new-home market remains strong.”

And these concerns aren’t without warrant. The Commerce Department recently proposed yet another Candadian lumber tarrif increase of nearly 30% which could have drastic affects on homebuilders and homebuyers alike. Read more about that here.

Derived from a monthly survey that NAHB has been conducting for 30 years, the index 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 most homebuilders view conditions as good rather than poor.

All three of the HMI components fell in July, however they are all still historically high. The component measuring current sales conditions dropped two points to 70 while the index showing sales expectations in the next six months decreased by two points to 73. The component measuring buyer traffic slipped just one point to 48 in July.

“The HMI measure of current sales conditions has been at 70 or higher for eight straight months, indicating strong demand for new homes,” NAHB Chief Economist Robert Dietz said. “However, builders will need to manage some increasing supply-side costs to keep home prices competitive.”

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