The latest homebuilder confidence level reflects the negative impacts of inflation on materials costs and unavailable supplies.

If It’s Not One Thing, It’s Another Or…Maybe Two or Three or Four

For the first time in four months, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) dropped one point to 83 in January from December 2021.

The problem (s)?  Inflationary impacts on construction materials and continued supply chain disruptions.

National Association of Home Builders (NAHB) Chairman Chuck Fowke said, “Higher material costs and lack of availability are adding weeks to typical single-family construction times.  The NAHB analysis indicates the aggregate cost of residential construction materials has increase almost +19% since December 2020.”

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All by itself, the price of softwood lumber skyrocketed some +85% in the last three months, according to Random Lengths, since the Biden Administration announced it was reimposing Trump-era double-digit tariffs on Canadian lumber.

The prices of other construction materials, such as steel and gypsum, are also up.  Additionally, ongoing construction labor shortages throughout the country are  fueling costs now that construction workers have more leverage concerning higher wages.

The fourth problem is that homebuilders, along with everyone else, are facing higher interest rates.  Mortgage rates hit 3.7% last week as the average rate on the 30-year fixed mortgage increased more than 50 basis points since December.  Compared with one year ago, basis points  are  now higher by 83 points.

Robert Dietz, NAHB’s chief economist, summarized the dip in homebuilders’ confidence by saying, “While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, (supply shortages), worsening skilled labor shortages and higher mortgage rates point to declines for housing affordability in 2022.”

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Breakdown of HMI

The HMI consists of three components, two of which dropped in this January homebuilders’ confidence ranking.

  • Current sales conditions – unchanged at 90
  • Sales expectations over the next six months – down 2 points to 83
  • Buyer traffic – down 2 points to 69

The HMI regional breakdown in January reflected these changes:

  • Northeast – I point decline to 73
  • Midwest – 1 point increase to 75
  • South – 1 point increase to 88
  • West – 1 point increase to 88

(Any point ranking above 50 is considered to be positive.)

Supply Chain Challenges

Many new homes are “finished” but they come to market without such things as kitchen cabinets and/or garage doors.

NAHB Chair Fowke said, “Policymakers need to take action to fix supply chains.  Obtaining a new softwood lumber agreement with Canada and reducing tariffs is an excellent place to start.”

Without remedies, the NAHB predicts that ongoing supply chain issues would impact housing affordability throughout 2022.

Thanks to CNBC and Inman.

 

 

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