as Rising Material Costs Continue to Weigh on Construction Activity- The NAHB Housing Market Index showed a slight decline in homebuilder confidence in July.
- Responders saw declining current sale conditions, better future sale conditions, and worse potential buyers’ traffic.
- Homebuilder confidence is elevated and the construction outlook remains strong.
The NAHB (National Association of Home Builders) Housing Market Index decreased slightly to 80 in July, an eleven-month low, from 81 in June. However, the index remains well above the 50-point threshold, indicating positive building conditions.
The current sales conditions component which makes up 60% of the NAHB HMI inched down to 86 from 87 in June; the future (next six months) sales conditions component edged up to 81 from 79 and the prospective buyer's traffic component fell to 65 from 71. Homebuilder confidence declined in all regions except the Midwest.
Rising material costs continue to weigh on construction activity. Steel prices tripled in the first half of 2021, aluminum prices more than doubled, and prices for many building materials are near all-time highs. The price of lumber peaked at $1670 per thousand board feet in early May but has cooled recently; lumber futures contracts for September delivery closed at $536 per thousand board feet on Friday. Sky-high material prices will fall as industrial production improves and supply chains normalize. Construction was shut down in many states at the beginning of the pandemic and the sector lost over 1 million workers even as housing demand remained resilient. The sector has recovered about 80% of the jobs lost but construction employment has fallen for three straight months amidst a tight labor market.
With existing homes for sale near multidecade lows and solid housing fundamentals, demand for newly built homes will remain strong into 2022. Despite the recent declines in long-term interest rates, mortgage rates will gradually rise as the U.S. economy reopens. Tight inventories will loosen as the pandemic fades and vaccination rates increase. The residential construction outlook remains strong and housing will continue to support the U.S. economy into 2022.
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