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Builder Confidence Reverses a 3-Month Decline

The index rose one point to 76 this month – any number over 50 is positive – but the labor shortage and cost/availability of raw materials remain challenging.

WASHINGTON – Builder confidence inched up in September on lower lumber prices and strong housing demand – but the new-home industry continues to grapple with other issues, notably building material supply chain issues and labor challenges.

This one’s one-month increase of one point reverses three months of declines, with September sentiment for newly built single-family homes edging up to 76, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

“Builder sentiment has been gradually cooling since the HMI hit an all-time high reading of 90 last November,” says NAHB Chairman Chuck Fowke, a custom home builder from Tampa. “The September data show stability as some building material cost challenges ease, particularly for softwood lumber.”

Fowke says other challenges continues, however. “Delivery times remain extended and the chronic construction labor shortage is expected to persist as the overall labor market recovers,” he adds.

NAHB Chief Economist Robert Dietz the single-family, new-home market “has moved off the unsustainably hot pace of construction of last fall and has reached a still-hot but more stable level of activity … While building material challenges persist, the rate of cost growth has eased for some products, but the job openings rate in construction is trending higher.”

NAHB expects housing affordability to be a key demand-side challenge in the coming quarters, given the rapid rate increase of home prices and construction costs over the last year.

“Regionally, we continue to see growth in the South and the West, particularly the Mountain West,” says Dietz. “Exurban markets have expanded the most over the last year, although inner suburbs are now experiencing an acceleration.” He says townhouse construction had its best quarter in 14 years this spring.

Derived from a monthly survey that NAHB has been conducting for 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good rather than poor.

The HMI index gauging current sales conditions rose one point to 82, the component measuring traffic of prospective buyers posted a two-point gain to 61 and the gauge charting sales expectations in the next six months held steady at 81.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell two points to 72, the South dropped two points to 80 and the West registered a two-point decline to 83. The Midwest was unchanged at 68.

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