Homebuilder Confidence Drops Under Inflation Pressure

Builder confidence fell one point to 83 in January, according to the National Association of Home Builders.

Of the index’s three components, current sales conditions was unchanged at 90. Sales expectations in the next six months fell 2 points to 83, and buyer traffic fell 2 points to 69. The average rate on the 30-year fixed is now about 50 basis points higher than it was a month ago and 75 basis points higher than it was one year ago.

Workers install roofing on an apartment complex under construction in Lehi, Utah, on Friday, Jan. 7, 2022. Workers install roofing on an apartment complex under construction in Lehi, Utah, on Friday, 7 Jan.

Builders in the single-family housing market are facing growing expenses, which is causing a turnaround in sentiment to start the year.

Builder confidence fell one point to 83 in January, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Anything above 50 is considered positive, but that is the first drop in four months. The index also stood at 83 in January 2021.

“Higher material costs and lack of availability are adding weeks to typical single-family construction times according to what the data analysis indicates on the aggregate cost of residential construction materials has increased almost 19% since December 2020.

The price of softwood lumber alone has jumped about 85% in just the last three months, according to Random Lengths. Lumber prices spiked last spring and then came down dramatically over the summer. They are up again now, after the U.S. doubled tariffs on Canadian lumber and Western wildfires disrupted lumber production.

Prices for other materials, such as gypsum and steel, are also higher. And the ongoing labour shortage has pushed costs up as well.

Of the index’s three components, current sales conditions was unchanged at 90. Sales expectations in the next six months fell 2 points to 83, and buyer traffic fell 2 points to 69.

Builders are also facing much higher mortgage rates in the new year, but the HMI data was collected early in the month, and doesn’t fully reflect that jump. The average rate on the 30-year fixed is now about 50 basis points higher than it was a month ago and 75 basis points higher than it was one year ago.