Builder confidence slips in July

Home builder sentiment slipped in July as supply-chain challenges, labor shortages, regulatory costs and the high prices of materials offset strong housing demand.

Builder confidence in the market for newly-built single-family homes fell one point to 80, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index.

Among the supply-side challenges, the price of OSB (oriented strand board) has been a particular problem lately, the NAHB said. As of July 8, OSB prices have soared by more than 500% above its January 2020 level.  

Cost increases are putting upward pressure on home prices and sidelining many prospective home buyers.  The situation has become so extreme that the White House recently heeded NAHB’s request to bring together stakeholders for a supply chain summit on July 16.

Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500 percent above its January 2020 level,” said NAHB Chairman Chuck Fowke. “We are grateful that the White House heeded our urgent plea to hold a building materials meeting with interested stakeholders on July 16 to seek solutions to end production bottlenecks that have harmed housing affordability.”

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.

The three major HMI indices were mixed in June. The HMI index gauging current sales conditions fell one point to 86, the component measuring traffic of prospective buyers dropped six points to 65 and the gauge charting sales expectations in the next six months posted a two-point gain to 81.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell four points to 75, the Midwest moved one-point lower to 71 and the West posted a two-point decline to 87. The South held steady at 85.

“Builders are contending with shortages of building materials, buildable lots and skilled labor as well as a challenging regulatory environment. This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment,” said NAHB Chief Economist Robert Dietz.

For the full set of HMI tables, including the complete history of the HMI and its components back to 1985, visit nahb.org/hmi.