Diminished Future Sales Expectations, Rising Costs Lower Builder Confidence

Ongoing lumber and building material supply side constraints, rising construction costs and expectations of higher interest rates continue to negatively affect builder sentiment even as buyer demand remains relatively solid.

First time HMI below 80-point mark since September, 2021

Builder confidence in the market for newly built single-family homes moved two points lower to 79 in March from a downwardly revised reading in February, according to the National Association of Home Builders/Wells Fargo Housing Market Index released March 16, 2022. The report marks the fourth straight month that builder sentiment has declined and the first time that the HMI has dipped below the 80-point mark since September 2021.

“While builders continue to report solid buyer traffic numbers, helped by historically low existing home inventory and a persistent housing deficit, increasing development and construction costs have taken a toll on builder confidence,” said NAHB Chairman Jerry Konter. “We call upon policymakers to act now to ease supply-chain woes. “Improving access to lumber, OSB and other materials will help builders increase the supply of badly-needed housing and fight inflation.”

Elevated inflation, rising interest rates suggest caution later in 2022

“The March HMI recorded the lowest future sales expectations in the survey since June 2020, said NAHB Chief Economist Robert Dietz. “Builders are reporting growing concerns that increasing construction costs (up 20 percent over the past 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market. While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”

The HMI index gauging current sales conditions fell three points to 86 and the gauge measuring sales expectations in the next six months dropped 10 points to 70. The component charting traffic of prospective buyers posted a two-point gain to 67.