Builder confidence slips in January

Home builder sentiment fell in January with the decline being blamed on high lumber prices and COVID-19.

Builder confidence in the market for newly-built single-family homes declined 3 points to 83 in January, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index.

But builder confidence remains on a strong level, despite the slide, the NAHB said.

On the horizon are housing affordability challenges due to rising home prices and a lack of supply. Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices, NAHB Chief Economist Robert Dietz said.

A lack of suitable building lots is also putting pressure on builders.

Derived from a monthly survey that NAHB has been conducting for 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.

All three major HMI indices fell in January. The HMI index gauging current sales conditions dropped two points to 90, the component measuring sales expectations in the next six months fell two points to 83 and the gauge charting traffic of prospective buyers decreased five points to 68.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 76, the Midwest was up two points to 83, the South fell one point to 86 and the West posted a one-point loss to 95.

The full HMI tables for January are available here.