Builder confidence fell by 5 points to 75 in August, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released on Tuesday.
That number is the lowest it’s been in 13 months, falling from 80 in July. While anything above 50 is considered to be a good market, the drop indicates that high material costs and labor shortages are tampering confidence even as demand for building is at an all-time high amid an inventory shortage. In April, near the beginning of the pandemic, builder confidence clocked in at 30.
Chuck Fowke | Photo credit: NAHB
“Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” NAHB Chairman Chuck Fowke said in a statement. “Policymakers need to find long-term solutions to supply-chain issues.”
The index is based on a scale from zero to 100 and gauges builder perceptions of single-family homes sales and sale expectations for the next six months.
“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,” NAHB Chief Economist Robert Dietz said in a statement. “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.”
Current sales conditions dropped 5 points to 81 while buyer traffic also dropped 5 points to 60. Sales expectations in the next six months remained the same at 81 points. All regions in the U.S. saw minor drops in builder confidence but the number are still quite high historically. At 85, builder confidence is highest in the Western region of U.S. and, at 68, lowest in the Midwest.