Homebuilders' Sentiments Sour As Inflation Pushes Construction Prices Higher

Homebuilders in the United States are seeing their months of optimism subside into pessimism as they see inflation push up prices for construction material, according to the latest results of the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

In a blog post by NAHB on Tuesday, the organization found that builder confidence in the market for newly-built single-family homes moved one point lower to 83 in January. Anything above 50 is considered positive, but that is the first drop in four months.

In previous readings, homebuilders expressed their concerns about the lack of inventory in the face of still strong demand for homes. The market has experienced a complicated two years during the COVID-19 pandemic, owing to an inadequate supply of labor and mounting costs for building material.

“Higher material costs and lack of availability are adding weeks to typical single-family construction times,” said NAHB Chairman Chuck Fowke.

“NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2020.”

Robert Dietz, the NAHB's Chief Economist, noted that the data only reflected the first two weeks of January and cannot fully reflect what he described as a recent jump in mortgage interest rates. He acknowledged that demand would likely remain consistent, but cautioned that dark clouds hung over the heads of homebuilders in the months ahead.

“While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, worsening skilled labor shortages and higher mortgage rates point to declines for housing affordability in 2022,” said Dietz.