Rising costs lower builder confidence

Home News Rising costs lower builder confidence

rising costsWashington D.C.—Ongoing lumber and building material supply side constraints, rising costs for construction and expectations of higher interest rates continue to negatively affect builder sentiment even as buyer demand remains relatively solid, according to the National Association of Home Builders (NAHB).

Builder confidence in the market for newly built single-family homes moved two points lower to 79 in March from a downwardly revised reading in February, according to the NAHB/Wells Fargo Housing Market Index (HMI). This is the fourth straight month that builder sentiment has declined and the first time that the HMI has dipped below the 80-point mark since last September.

Jerry Konter, chairman, NAHB, said rising costs for construction and development have taken a toll on builder confidence. “Builders continue to report solid buyer traffic numbers, helped by historically low existing home inventory and a persistent housing deficit,” Konter said. “We call upon policymakers to act now to ease supply chain woes. Improving access to lumber, OSB and other materials will help builders increase the supply of badly-needed housing and fight inflation.”

According to Robert Dietz, chief economist, NAHB, the March HMI recorded the lowest future sales expectations in the survey since June 2020. “Builders are reporting growing concerns that increasing construction costs (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market,” Dietz said. “While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”

Derived from a monthly survey that NAHB said it has been conducting for more than 35 years, the NAHB/Wells Fargo 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 fell three points to 86 and the gauge measuring sales expectations in the next six months dropped a whopping 10 points to 70. The component charting traffic of prospective buyers posted a two-point gain to 67.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell seven points to 69, the Midwest dropped one point to 72 and the South fell three points to 83. The West moved up one point to 90.

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