Builders’ Confidence Drops as Costs and COVID Increase

By Kerry Smith

Builders are extremely confident in the new-home market – but a little less confident than they were last month. NAHB cites rising lumber prices as one of the reasons.

WASHINGTON – Rising material costs – led by an upsurge in lumber prices – and the coronavirus’ resurgence pushed builder confidence in the market for newly built single-family homes down three points to 83 in January, according to the latest NAHB/Wells Fargo Housing Market Index (HMI).

Despite the drop, however, builder sentiment remains at a strong level. Any index number higher than 50 is considered positive territory, where builders feel more optimism than pessimism.

“Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” says NAHB Chairman Chuck Fowke, a custom home builder from Tampa. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots, and labor shortages … They are also concerned about a changing regulatory environment.”

“A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability,” adds NAHB Chief Economist Robert Dietz.

All three HMI indices that make up the larger report 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 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.

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