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Homebuilder confidence rises slightly, but cost concerns threaten future growth

Builder sentiment inches forward one point to 65 in July

Although homebuilder confidence inched forward one point to 65 in July, many builders still report rising construction costs as a major cause of concern, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

“Builders report solid demand for single-family homes,” NAHB Chairman Greg Ugalde said. “However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes."

In July, the index measuring current sales conditions inched forward from 71 to 72 points, while buyer traffic rose from 47 to 48. Additionally, expectations over the next six months rose from 70 to 71 points. 

The three-month moving averages for regional HMI scores show the Northeast held steady at 60 points, the South moved one point from 67 to 68, the West also increased one point to 72 points and the Midwest retreated from 55 to 56 points.

“Even as builders try to rein in costs, home prices continue to outpace incomes," NAHB Chief Economist Robert Dietz said. "The current low mortgage interest rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new home purchases in large metro suburban markets, where approximately one-third of new construction takes place." 

NOTE: The NAHB/Wells Fargo Housing Market Index gauges builder opinions of single-family home sales and expectations, asking for a rating of good, fair or poor. Builders are also asked to rate prospective buyer traffic from very low to very high. The scores are used to calculate a seasonally adjusted index with a rating of 50 or over indicating positive sentiment.

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