Builder confidence took a slight downturn in June, but remained relatively high with a Housing Market Index (HMI) of 81. The downturn suggests that the high price of building material costs and supply chain shortages are still impeding homebuilders, more than one year after the start of the coronavirus pandemic.
The index, released on Tuesday by the National Association of Home Builders (NAHB) and Wells Fargo, is down from 83 in both April and May. Prior to that, the index hit a high of 90 in November 2020.
If the index is above 50, more builders consider market conditions good than poor. The NAHB noted that an index above 80 is “still a signal of strong demand in a housing market lacking inventory.”
The HMI is based on a scale of zero to 100 and measures builder perceptions of single-family home sales and sale expectations for the next six months. It is a weighted average of three indices the NAHB generates: present single-family sales, single-family sales for the next six months, and traffic of prospective buyers.
“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” NAHB Chairman Chuck Fowke, said in a statement. “These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building. Policymakers need to focus on supply-chain issues in order to allow the economic recovery to continue.”
All three indices that average to calculate the HMI declined during June. Current sales conditions, sales expectations for the next six months, and traffic of prospective buyers all dropped by two points, respectively.
The South was the only region to see an increase in the three-month moving average for regional HMI scores, which rose by one point to 85. Meanwhile, the West’s three-month moving average fell one point to 89, the Midwest’s declined three points to 72 and the Northeast’s dropped five points to 78.
NAHB Chief Economist Robert Dietz noted that the supply issues are also having a domino effect on other parts of the market, creating more issues for both buyers and builders.
“While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” Dietz said in a statement. “Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans.”