Builder Confidence Hits 13-Month Low as Demand Drops

Homebuilder confidence hit its lowest level since July 2020. While labor shortages and supply challenges played a role, buyer “sticker shock” is the new concern.

By Kerry Smith

WASHINGTON – Higher construction costs, supply shortages and rising home prices pushed builder confidence to its lowest reading since July 2020, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

Builder sentiment in the market for newly built single-family homes fell five points to 75 in August. It’s still in positive territory since anything about 50 means builders are on the happy side of the monthly study, but it’s trending in a negative direction.

“Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” says NAHB Chairman Chuck Fowke, a custom home builder from Tampa. “Policymakers need to find long-term solutions to supply-chain issues.”

“Higher costs and material access issues have resulted in lower levels of home building and even put a hold on some new home sales,” adds NAHB Chief Economist Robert Dietz. “While these supply-side limitations are holding back the market, our expectation is that production bottlenecks should ease over the coming months and the market should return to more normal conditions.”

The HMI index gauging current sales conditions fell five points to 81, and the component measuring traffic of prospective buyers also posted a five-point decline to 60. The gauge charting sales expectations in the next six months held steady at 81.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 74, the Midwest dropped two points to 68, the South posted a three-point decline to 82 and the West registered a two-point drop to 85.

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.

© 2021 Florida Realtors®

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