Builder Confidence Eases on Supply-Side Constraints

Despite strong buyer demand, builder sentiment continued to slip in February as the industry grapples with ongoing building material production bottlenecks that are raising construction costs and delaying projects.

Builder confidence in the market for newly built single-family homes moved one point lower to 82 in February, marking the second straight month that confidence levels have declined by a single point, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).  Despite these monthly declines, the HMI has posted solid readings at or above the 80-point mark for the past five months.

Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances. These delivery delays are raising construction costs and pricing prospective buyers out of the market. Residential construction costs are up 21% on a year over year basis. Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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.

The HMI index gauging current sales conditions increased one point to 90, the gauge measuring sales expectations in the next six months fell two points to 80, and the component charting traffic of prospective buyers saw a four-point decline to 65.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased three points to 76, the West rose one point to 89, the Midwest fell one point to 73 and the South edged one point lower to 86.

The HMI tables can be found at nahb.org/hmi.