Why are homebuilders losing confidence?

Spiking material prices continue to push construction costs

Why are homebuilders losing confidence?

With lumber prices surging to levels never seen before, builder sentiment in the market for new single-family homes dwindled in January, according to the National Association of Home Builders.

The latest NAHB/Wells Fargo Housing Market Index (HMI) showed that builder confidence dropped three points to 83 in January.

NAHB Chairman Chuck Fowke said that, despite the strong housing demand and low mortgage rates, the lack of new homes on the market continues to exacerbate affordability problems.

“Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices. They are also concerned about a changing regulatory environment,” he said.

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“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” said NAHB Chief Economist Robert Dietz. “A shortage of buildable lots is making it difficult to meet strong demand, and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability.”

All three major HMI indices posted declines in January, according to NAHB. The component gauging current sales conditions slipped two points to 90, the HMI index measuring sales expectations in the next six months also slipped two points to 83, and the traffic of prospective buyers decreased five points to 68.

Regionally, the Northeast saw a six-point drop to 76, the Midwest rose two points to 83, the South was down one point to 86, and the West decreased one point to 95.