Rising Material Challenges, Declining Builder Sentiment
Rising material prices and supply chain shortages resulted in builder confidence dipping to its lowest level since August 2020. 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 fell two points to 81 in June. Despite the monthly decline, the reading above 80 is still a signal of strong demand in a housing market lacking inventory.
"Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June," says Chuck Fowke, NAHB chairman. "These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building. Policymakers need to focus on supply-chain issues in order to allow the economic recovery to continue."
"While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines," says Robert Dietz, NAHB chief economist. "Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans."
All three of the major HMI indices posted declines in June. The HMI index gauging current sales conditions fell two points, the gauge charting sales expectations in the next six months posted a two-point decline and the component measuring traffic of prospective buyers dropped two points.