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May Builder Confidence Holds Steady as Concerns About Material Prices Grow

Builder confidence held stable in May, despite growing concerns over the price and availability of most building materials, including lumber. The latest National Association of Home Builders/Wells Fargo Housing Market Index shows that builder confidence in the market for newly built single-family homes in May is unchanged from April. 

"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," says Chuck Fowke, NAHB chairman. "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."

"Low interest rates are supporting housing affordability in a market where the cost of most materials is rising," says Robert Dietz, NAHB chief economist. "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." 

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