Despite Strong Headwinds, Builder Sentiment Remains High

The latest NAHB/Wells Fargo Housing Market Index report shows that builder confidence in the market for newly built markets remains at 83 in May, unchanged from the previous month.

This confidence has held despite the impact of rising prices and shrinking availability of most building materials, lumber in particular.

“Low interest rates are supporting housing affordability in a market where the cost of most materials is rising,” says NAHB chief economist Robert Dietz. “In recent months, aggregate residential construction material costs were up 12% year over year, and our surveys suggest those costs are rising further. Some builders are slowing sales to manage their own supply chains, which means growing affordability challenges for a market in critical need of more inventory. … Home buyers should expect rising prices throughout 2021 as the cost of materials, land, and labor continue to rise.”

The HMI index gauging current sales conditions was 88 in May, unchanged from April. The index of sales expectations in the next six months rose one point to 81, and the component measuring prospective buyer traffic fell one point to 73. Any reading above 50 indicates that more builders view conditions as good than as poor.

On a three-month moving average basis, the South had the highest HMI out of the four regions at 84, up one point from the previous month. The West was unchanged at 90, the Northeast fell four points to 82, and the Midwest fell three points to 75.

“Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates, and a growing demographic of prospective home buyers,” says NAHB chairman Chuck Fowke. “However, first-time and first-generation home buyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability. Policymakers must take note and find ways to increase production of domestic building materials, including lumber and steel, and suspend tariffs on imports of construction materials.”