Homebuilder confidence drops for the first time in four months, as inflation hits materials

Workers install roofing on an apartment complex in Utah.

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

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index shows builder confidence fell one point to 83 in January. The first drop in four months occurred when anything above 50 is considered positive. The index stood at 83 in January 2021.

Chuck Fowke, Chairman of the NAHB, said that higher material costs and lack of availability are adding weeks to typical single-family construction times. The aggregate cost of residential construction materials has increased since December.

Random Lengths says the price of lumber has increased by 85% in the last three months. The prices of lumber went up and then went down over the summer. They are up again after the U.S. doubled tariffs on Canadian lumber. The prices of gypsum and steel are higher. The labor shortage is pushing costs up.

Current sales conditions were unchanged at 90. Sales expectations fell 2 points to 83 and buyer traffic fell 2 points to 69 in the next six months.

The data collected early in the month doesn't fully reflect the jump in mortgage rates in the new year. 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 a year ago.

Robert Dietz, NAHB's chief economist, said that the combination of increases for building materials, worsening skilled labor shortages, and higher mortgage rates point to declines for housing affordability in the future.