Home Builder Confidence Drops Amid Deteriorating Conditions

Higher construction costs, rising home prices and building supply shortages have combined to drop builder confidence to its lowest level in 13 months, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

Building material prices have increased a record 13% year to date and 19.4% over the past 12 months, the Bureau of Labor Statistics recently reported.

By contrast, the average rise of building materials prices between January and July was +1.2% from 2015 through 2019 (the most recent data available), less than one-tenth of 2021’s current gain.

The builders’ trade group is expecting the supply shortage to ease in the coming months with the market returning to more normal conditions, NAHB Chief Economist Robert Dietz said in unveiling the report.

NAHB Chairman Chuck Fowke acknowledged some prospective home buyers are staying away because of sticker shock from the higher construction costs boosting what they would have to pay.

Nationally on a three-month moving average, builder sentiment for newly built single-family homes dropped five points to 75 in August while falling one point to 74 in the Northeast, two points to 68 in the Midwest, a three-point decline to 82 in the South, and a two-point drop to 85 in the West.

NAHB has said rising building material costs, high demand and low inventory have added tens of thousands of dollars to the price of a new home, putting housing affordability at its lowest level in a decade.

The share of new and existing homes affordable to families making the US median income of $79,900 dropped to 56.6% in the second quarter from 63.1% in the first, according to the NAHB/Wells Fargo Housing Opportunity Index (HOI).

Dietz has called on policymakers to focus on supply-side solutions that will enable builders to increase housing production and rein in rising home prices.

Earlier this summer, NAHB warned the affordability problem could get worse, particularly for new homes.

Lumber, which added $35,000 to the average price of a new home from April 2020 to April 2021, was listed as a major factor for the affordability issue now.

A shortage of workers and an overabundance of regulations were also given blame.

Many home buyers who have had to look at existing homes in the wake of the price increases have had this option shut off to them as well, since these units have also seen hefty price hikes, said NAHB.