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06/15/2021

Builder confidence sags in June

High material prices, supply shortages, and rising new home costs are preventing home builders from moving forward.
a view of a tall building

The rising cost of building materials combined with supply-chain shortages took its toll on builder sentiment this month.

The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) 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.

But the NAHB also said the latest builder confidence reading declined to its lowest level since August 2020. 

Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June, the NAHB said.

The higher costs have moved some new homes beyond the budgets of prospective buyers, which has slowed the strong pace of home building. 

In its latest report, the NAHB said 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 combat scarce building materials, labor, and lots, rising home prices continue to push buyers to the sidelines. 

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The NAHB also said that supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans.

The HMI index gauging current sales conditions fell two points to 86, the gauge charting sales expectations in the next six months posted a two-point decline to 79, and the component measuring traffic of prospective buyers dropped two points to 71.

Looking at the three-month moving averages for regional HMI scores, the South rose one point to 85, the West fell one point to 89, the Midwest dropped three points to 72 and the Northeast posted a five-point decline to 78.

The latest HMI tables can be found at nahb.org/hmi.