Builder sentiment falls to lowest reading since July 2020

Builder sentiment falls to lowest reading since July 2020

High construction costs and balking buyers have held residential builder confidence to its lowest reading in just over a year, according to the National Association of Home Builders (NAHB).

The organization’s Housing Market Index (HMI), a metric gauging builder sentiment that NAHB maintains jointly with Wells Fargo, fell five points month over month to a reading of 75 in August. That’s generally still a positive level; readings above 50 indicate that more builders view conditions as good rather than poor.

Still, ongoing supply shortages and ensuing input cost hikes continue to hurt builders, said Chuck Fowke, NAHB chairman.

“Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” he said. “Policymakers need to find long-term solutions to supply-chain issues.”

“While the demographics and interest for home buying remain solid, higher costs and material access issues have resulted in lower levels of home building and even put a hold on some new home sales,” added Robert Dietz, the NAHB’s chief economist. “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.”

Some signs of such easing are already surfacing. Last week, for example, the price of lumber dropped to $480.40 per thousand board feet — lowest since July 2020. If the trend holds, this week would mark 13 straight weeks of declining lumber prices. Kyle Little, CEO of Sherwood Lumber, earlier this week told CNBC that falling lumber prices have sparked renewed interest and heightened ordering activity in the commercial and multifamily building sectors.

For now, however, builders in the single-family segment don’t quite yet share the optimism. The overall HMI is composed of sub-indices gauging builder response to certain facets of the market, with the sub-index measuring builder perception of prospective buyer traffic posting a five-point decrease to 60. And while the sub-index gauging current sales conditions remains high at a reading of 81, it fell also five points month over month.

The sub-index tracking builder sales expectations in the next six months was flat, holding steady at a reading of 81.

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