US Builder Sentiment Remains High But Surging Costs Are Creating Major Risks
The ongoing boom in housing demand is keeping homebuilders busy, but soaring costs for construction materials are starting to weigh down on the industry’s sentiment.
According to the latest National Association of Home Builders/Wells Fargo Housing Market Index reading, builder sentiment for the single-family housing market remained unchanged at 83 for the month of May, with any reading above 50 being considered positive. This time a year ago, the index dropped to a nadir of 37, as Covid-19 lockdowns forced the housing market to shut down. However, that sentiment soon rebounded come June and July, as Americans with flexible work schedules rushed to the suburban and rural areas in search of more spacious housing.
Builders are now saying they continue to see an ongoing stream of new homebuyers, largely due to the worsening shortage of existing homes for sale. Historically-low interest rates are giving potential homebuyers more affordability, but the sharp rise in home prices are eroding away at the purchasing power. “First-time and first-generation homebuyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability,” explained NAHB chairman Chuck Fowler.
According to NAHB, aggregate residential material costs are 12% higher compared to May 2020, and are on a trajectory to continue increasing. This poses a significant problem for potential homebuyers and builders alike. “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,” said NAHB chief economist Robert Dietz. “Homebuyers should expect rising prices throughout 2021 as the cost of materials, land and labor continue to rise,” he added.
Information for this briefing was found via the NAHB. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
