America’s housing market continues to maintain its optimistic outlook, as interest rates sit at historically-low levels and homebuyer demand remains high. However, the country’s homebuilders are no longer feeling that same sentiment, as surging construction costs push their confidence to an 11-month low.
The National Association of Home Builders (NAHB) published its latest monthly sentiment index, which fell 1 point to 80 in July. Compared to the same period a year ago, though, the index stood at 72, suggesting that homebuilder confidence still sits at elevated levels despite this month’s slight decline. The index is comprised of three other components as well, which showed that current sales conditions fell from 87 to 86, buyer traffic receded 6 points to 65, and sales expectations over the next six months jumped 2 points to 81.
Although the demand for housing remains high, the NAHB said that the surging costs of lumber are wearing away at homebuilder confidence. “Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500% above its January 2020 level,” explained the association’s Chairman Chuck Fowke.
Albeit the recent 50% decline for the price of lumber in the futures market, the savings have yet to make their way down to homebuilding companies, and subsequently, consumers. Ongoing supply chain bottlenecks, coupled with reduced inventory levels, are keeping retail prices of lumber inflated.
“Builders are contending with shortages of building materials, buildable lots and skilled labor as well as a challenging regulatory environment. This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment,” added NAHB chief economist Robert Dietz.
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.