Homebuilder Sentiment Sags as Cost Concerns Keep Rising

MESA, AZ - MARCH 06: New homes are under construction at a housing development on March 6, 2013 in Mesa, Arizona. In 2008, Phoenix, Arizona was at the forefront of the U.S. housing crisis with home prices falling 55 percent between 2005 and 2011 leaving many developers to abandon development …
Justin Sullivan/Getty Images

The inflationary environment and labor shortage took its toll on homebuilder confidence in June.

The National Association of Home Builders said its homebuilder confidence index fell in June to its lowest level in 10 months.

Rising prices of building materials and supply chain shortages sapped confidence, said NAHB chairman Chuck Fowke.

“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” Fowke said.

The index fell to 81 in June, two points lower than its May reading. Readings above 50 indicate optimism about the market for single-family homes. Readings above 80 indicate a sign of strong demand for housing.

The measure of current sales conditions fell two points to 86. The metric of sales expectations fell two points to 79. The traffic measure dropped to points to 71.

“While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” said NAHB Chief Economist Robert Dietz.

“These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of homebuilding. Policymakers need to focus on supply-chain issues in order to allow the economic recovery to continue,” Fowke said.

Builders also say that appraisals are not keeping up with the rapid rise in costs and sales prices, hurting their ability to access credit. So inflation is having the effect of tightening financial conditions.

.

Please let us know if you're having issues with commenting.