Builder optimism continues to slide in July

Dive Brief:

Homebuilder confidence in the market for new single-family construction fell two points in July to a reading of 64 on the National Association of Home Builders/Wells Fargo Housing Market Index, marking the lowest reading since November. June's score was revised down one point to 66.
NAHB Chairman Granger MacDonald said in a statement that builders are growing more concerned with rising material prices, especially lumber. While current sales conditions have remained at a reading of 70 or higher for eight-consecutive months, builders will need to manage increasing costs to keep home prices affordable and buoy demand for new homes.
All three HMI sub-indices fell for the second-straight month, with current sales conditions and sales expectations for the next six months each dropping two points to 70 and 73, respectively. Buyer traffic slid one point to 48.

Challenges finding skilled labor, a shortage of available lots and rising material prices are driving down builder optimism in the market for new single-family homes.

Mary Tyler March/Construction Dive, data from National Association of Home Builders

Dive Insight:

Builder optimism continues to decline as the homebuilding industry faces challenges filling the worker pipeline, contending with a shortage of available lots and managing rising material prices that are together providing a good deal of resistance for their ability to address demand. That is putting pressure on a market already pressed for more housing inventory, fueling home-price growth and turning some would-be buyers away from the market.

Builders will likely remain conservative about their ability to meet that demand head-on. The residential sector shed 1,500 positions in June and material prices, including roofing and siding products, rose during the month. Additionally, recent trade duties on softwood lumber imports from Canada threaten higher prices and material shortages. A recent NAHB survey found that 21% of single-family builders today have difficulty accessing framing lumber compared to 7% who said the same in July 2015, before the latest softwood lumber agreement between the U.S. and Canada expired.

These supply-side headwinds contributed to May's drop-off in housing starts, which reached their lowest levels in eight months. Building permit authorizations were at their lowest level in more than a year in May, which could signal a further slowdown in residential construction demand over the next few months. Still, tomorrow's housing starts report for June will offer more insight into upcoming activity in the sector and how that will affect builder confidence.